apple dun got wormed
Margrethe Vestager slams Apple with €13 billion tax bill
Apple paid an effective corporate tax rate of 0.005 percent on European profits in 2014, Commission says.
European competition czar Margrethe Vestager took on the world’s most profitable company Tuesday when she ruled that Apple violated EU rules with a tax arrangement that allowed the iPhone maker to skirt taxes for more than a decade.
Apple must now pay Ireland €13 billion in back taxes, plus interest, a sum equal to the country’s health care budget this year. The finance minister and Apple promised to challenge the ruling in court.
The European Commission’s probe had already strained relations with the U.S., which has accused Vestager of unfairly targeting American companies. Late last year, she ordered the Netherlands to collect up to €30 million in back taxes from Starbucks. And she continues to investigate Luxembourg’s special deals for Amazon and McDonald’s.
“We believe that retroactive tax assessments by the Commission are unfair, contrary to well-established legal principles, and call into question the tax rules of individual member states,” a spokesperson for the U.S. Treasury said Tuesday.
American politicians also piled on the criticism. Several had called upon the Treasury to explore using a retaliatory double-tax on European companies earlier this year, an option the agency said it was reviewing.
But Vestager insisted that “not one rule has changed. It is a question of paying unpaid taxes.”
In Brussels, many EU politicians praised Vestager’s crackdown.
“Apple pays no taxes in Europe and of course Spotify has to pay. How should Europe build up tech companies if U.S. companies do not pay tax?” asked Sven Giegold, a German member of the Greens party in the European Parliament. “This tough line … is winning back trust in the European project.”
The Commission said Apple paid an effective corporate tax rate of 1 percent on its European profits in 2003, down to 0.005 percent in 2014. Those rates gave Apple an unfair advantage over rivals.
“If my tax rate went down from .05 percent to .005 percent, I should have felt maybe I should have had a second look at my tax bill,” Vestager joked.
Apple quickly shot back, saying the decision will be harmful for Europe, and that it pays its taxes.
“The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process,” the iPhone maker said. “The Commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money. It will have a profound and harmful effect on investment and job creation in Europe.”
Pending a court verdict after an appeal, Dublin will be required to collect the back taxes and Apple will have to reflect the sum on its financial statements.
Ireland’s standard tax rate of 12.5 percent is already the lowest in Europe.
The investigation, launched officially in June 2014, zeroed in on two companies of the Apple group - Apple Sales International and Apple Operations Europe.
While Apple employs almost 6,000 people in Ireland and claims to be the country’s largest taxpayer, the Commission said the “head offices” of these two companies existed only on paper and could not have generated such profits.
Apple International had the rights to manufacture products outside of Ireland and sell them throughout Europe, the Middle East, Africa and India.
“No matter if you buy an iPhone in Berlin, Rome or somewhere else, contractually, you are buying from Apple International in Cork, Ireland,” Vestager said.
“The Google case is, to my eyes, the case for this Commission,” says Ramon Tremosa, a Catalan MEP, who suggests that its outcome will determine “the legacy of Commissioner Vestager.”
The means other countries can claim some of the €13 billion in unpaid taxes on the sales of iPhones, iPads and other products sold in their countries.
“Other countries can look into our investigation, our data and our reasoning,” Vestager said. “If Apple should have recorded sales in those countries instead of Ireland, they can force them to pay in that country.”
That wasn’t what raised the red flag for the Commission. Apple broke state aid laws by the way it allocated the vast majority of its profits to Apple International.
“Our decision concludes splitting profits did not have any factual or economic justification,” Vestager said.
Ireland’s Finance Minister Michael Noonan said he would fight the Commission “to defend the integrity of our tax system … and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation.”
The consequences could be far-reaching even if Ireland is victorious in the long run.
“The commissioner issued what seemed to be an open invitation to tax authorities both in the EU and outside it to re-examine Apple’s tax filings,” said Ken Almand, head of transfer pricing at RSM, a U.K.-based firm specializing in audit and tax.
The details of the case widened divisions among Ireland’s political parties.
“Today’s ruling has shocked even those of us who have been watching this issue with a keen eye,” said Pearse Doherty, finance spokesman for Sinn Féin, the third-largest party, adding, “That is a massive amount of money and we must have a public inquiry to establish who facilitated this deal.”
Ireland has long attracted companies with its 12.5 percent corporate tax rate - the lowest in the EU, and less than half the 35 percent companies pay in the U.S.
The high U.S. tax rate is one of the reasons for corporate America’s offshore cash hoards. According to Moody’s, a credit-rating agency, the offshore balance for all U.S. companies now totals more than $1.1 trillion, with the largest treasure chests belonging to Apple, Microsoft, Google, Cisco and Oracle.
In every state aid case, Vestager has argued these pacts give companies a financial edge over competitors and violate EU rules. She also has stressed that she has gone after European companies too, including Fiat, German chemicals company BASF and Belgium-based brewer Anheuser-Busch InBev.
Other multinational corporations have been reviewing their existing tax agreements with European countries to try and figure out their exposure. To frustrated U.S. corporations, it appears no one but the EU is authorized to make a final decision, throwing rulings they thought were ironclad into limbo.
politico has graphs and comparisons wrt other court cases like this