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European Commission orders Apple to pay over $14.5 billion in outstanding illegal taxes to Ireland

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After spending a good two years investigating Apple’s tax evasion in Ireland, the European Commission(EC) has today released a statement concluding that Ireland granted illegal tax benefits to Apple for its European operations. The commission has now asked the Cupertino-based tech giant to pay €13 billion(approx. $14.5 billion) in outstanding unpaid taxes to the Irish government.

There debate about illegal tax rebates in European countries has been a pressing issue for a very long time. This started when the European Commission decided to take an in-depth look at the benefits granted to the tech giant by Ireland. While allowing the company to setup European headquarters in Ireland, the local government had granted additional tax benefits to Apple specifically. And EU believes that this is illegal under state aid rules, because it allowed Apple to pay substantially less taxes as compared to other businesses HQed in Ireland.

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In fact, the additional tax reforms in Ireland enabled Apple to avoid taxation on almost all profits generated by sale of Apple products in the entire European market. It records all sales in Ireland rather than in the country where it is sold, and this structure is outside the remit of EU state aid control.

Commenting on the same, Commissioner Margrethe Vestager, in charge of competition policy, said,

Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules. The Commission’s investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years.

In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014, she added.

While investigation, the commission also uncovered that Cupertino had incorporated two subsidiary companies, namely Apple Sales International and Apple Operations Europe. These companies attributed all their sales and profits to a ”head office”, which was actually a front and only existed on paper. The head office isn’t located anywhere in the country(or anywhere else for that matter), thus, the subsidiaries provided by the Irish tax law aren’t applicable.

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Though the commission had previously issued a preliminary decision stating that the tax reform was in violation of the state aid rules, but this is the first time that it has decided on an exact amount for Apple’s liabilities. This, however, is just the tax benefit that Apple garnered from the tax reforms given to it. The total amount of fine that Apple needs to pay will be much more, in the range of $19 billion, as it will also include interest for the past 10 years.

Apple’s Reply

On the other hand, Apple hasn’t been sitting and mutely listening to any allegations thrown its way. It has published a lengthy statement in response to EU’s ruling regarding its back-dated tax payments to the Irish government. And CEO Tim Cook while shedding light on the history and current stats of Apple’s success and growth states,

As responsible corporate citizens, we are also proud of our contributions to local economies across Europe, and to communities everywhere. As our business has grown over the years, we have become the largest taxpayer in Ireland, the largest taxpayer in the United States, and the largest taxpayer in the world.

He further adds that the company has received guidance from Irish tax authorities on how to comply correctly with Irish tax law while doing business there(the same given to each business operating in the country). But, Cook says that European Commission is out of a twisted mission to rewrite Apple’s history in Europe, ignore the operating country’s tax laws and question the international tax system in the process.

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Commenting specifically on the allegations stated in the statement released by EC, Cook says,

The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals. We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid.

CEO Tim Cook also believes now that EC has set forth an unprecedented ruling, it is sure to have some wide-reaching implications. It is questioning the Irish(or any other country) tax laws, with a view of how the commission wants the tax structure to be. This is a devastating blow to the sovereignty of EU member states over their own tax matters, and could lead to a harmful effect on investment and job creation in the country.

Apple clearly states that it has always complied and supported international tax reforms, with the objective of clarity and simplicity. But if one takes a close look at the commission’s theory then any other business operating in the EU is also under the risk of being subjected to taxes under laws that never existed, says Cook.

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