Those handy-dandy tax loopholes and fiscal shenanigans that large corporations take advantage of by offshoring may be coming to an abrupt end. Apple is the first corporation to be singled out by the EU and, most likely, will not be the last.
Apple must pay the piper it seems as, according to The Wall Street Journal, the European Commission on Tuesday (Aug. 30) ordered Ireland to collect €13 billion ($14.5 billion) in unpaid taxes from Apple. Both Apple and Ireland will appeal.
There has been some movement internationally and by the EU to stop multinational companies from avoiding taxes by offshoring, and this could irritate relations between the U.S. and the EU. This recent decision regarding Apple features the highest sum ever demanded from a company based on the EU’s rules that forbid companies from gaining an advantage from government assistance.
The decision comes as a shock to some analysts, who are worried that it could lead to additional claims by the U.S. and EU governments concerning the right to tax offshore profits of large companies, such as Apple.
Apple CEO Tim Cook maintained that Apple is up to date on its tax bills, and Irish Finance Minister Michael Noonan protected Ireland’s interests by stating that Ireland would appeal the decision.
The EU’s argument is that Ireland allowed Apple to pay annual tax rates of between 0.005 percent and 1 percent on its European profits for over a decade by designating only a small amount of profit to Ireland. Apple, therefore, avoided “taxation on almost all profits generated by sales of Apple products in the entire EU Single Market,” according to the commission, and Ireland was compliant in granting tax benefits to Apple.
Apple has declared that it will put the substantial amount claimed into escrow until the matter is resolved; Ireland has four months to calculate the total owed and collect it from Apple. Also, Apple will have to pay the required taxes going forward.
Independent lawyers consider the EU action in collecting back taxes aggressive. According to lawyer Philipp Werner of Jones Day: “It certainly is a massive amount.” A spokesperson from the U.S. Treasury stated 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.”
When the news broke, Apple shares dropped 0.7 percent.
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