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Apple ordered to pay Ireland £11bn in back taxes by EU Commission

Published 30/08/2016

European Commission says Ireland demands back taxes from tech giant Apple
European Commission says Ireland demands back taxes from tech giant Apple

The European Commission has ordered Ireland to recoup 13 billion euro (£11.1 billion) from tech giant Apple over a sweetheart tax deal.

A three-year investigation by Competition Commissioner Margrethe Vestager found the arrangements dating back to the early 1990s were illegal under state aid rules.

She said it allowed Apple to pay substantially less tax than other businesses - 1% on its European profits in 2003 and 0.0005% in 2014.

The Republic of Ireland's tax inspectors have been told to recover the unpaid billions.

"Member states cannot give tax benefits to selected companies - this is illegal under EU state aid rules," the commissioner said.

"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."

Ms Vestager found two tax rulings issued by Ireland to Apple which she said substantially and artificially lowered the tax paid by the multinational maker of iPhones and iPads.

She said the arrangements to establish the taxable profits for two Irish incorporated companies of the Apple group - Apple Sales International and Apple Operations Europe - did not correspond to economic reality.

The commissioner said almost all sales profits recorded by the two companies were internally attributed to a "head office" which only existed on paper and could not have generated such profits.

Her inquiry found the profits were not subject to tax anywhere.

iGraphic - Apple Inc. was ordered to repay a record €13 billion plus interest after Ireland illegally slashed the tech-giants’s tax bill. It is the largest penalty in a three-year EU crackdown on sweetheart tax deals.
iGraphic - Apple Inc. was ordered to repay a record €13 billion plus interest after Ireland illegally slashed the tech-giants’s tax bill. It is the largest penalty in a three-year EU crackdown on sweetheart tax deals.

Ireland's Finance Minister Michael Noonan said he profoundly disagreed with the verdict.

His office said the Republic does not do "deals" with taxpayers.

"Our tax system is founded on the strict application of the law ... without exception," Mr Noonan said.

The minister said he would seek Government support to challenge the commissioner's findings in the European courts.

"This is necessary to defend the integrity of our tax system, to provide tax certainty to business, and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation," he said.

"It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment."

The tax bill covers a 10-year period, the longest the commissioner could enforce, for the years 2003 to 2014 of up to 13 billion euro (£11.1 billion), plus interest.

The inquiry found that Ireland's treatment of Apple allowed the global brand to avoid taxation on almost all profits generated by sales of Apple products in the entire European single market.

It said this was because Apple recorded all its sales in Ireland rather than in the countries where the products were sold.

Niall Cody, chairman of the Ireland's Revenue Commissioners, insisted that it collected the full amount of tax due from Apple under Irish law.

"Under Irish tax law, non-resident companies are chargeable to Irish corporation tax only on the profits attributable to their Irish branches by reference to the facts and circumstances," Mr Cody said.

"The profits of non-resident companies that are not generated by their Irish branches - such as profits from technology, design and marketing that are generated outside Ireland - cannot be charged with Irish tax under Irish tax law."

The case is one of the most high-profile in the fight to redraw boundaries on aggressive tax avoidance, a fight which has put the EU at odds with the US government.

Apple has had a base in Ireland since 1980, long before it became the global brand it is today thanks to its iPhones, iPads and App Store.

It employs around 5,500 people in the country, with its biggest operations in Cork.

The findings are expected to throw further pressure on the Irish Government's pursuit of foreign investment through its attractive but much-maligned corporation tax rate of 12.5% for business profits.

Ms Vestager's ruling also comes just a week before Apple's biggest product launch of the year, with the iPhone 7 and a new version of the Apple Watch to be unveiled in San Francisco.

Her office's investigations have also targeted aggressive tax planning by Starbucks and Fiat, both of which are appealing against rulings ordering them to pay back taxes to the Netherlands and Luxembourg.

Apple has 22,000 employees across Europe.

It also claims to have helped create more than 1.4 million jobs since its App Store launched eight years ago, and said it spent 11 billion euro (£9.4 billion) with more than 4,500 European suppliers in 2013.

Apple also has plans for a major data centre near Athenry, Co Galway, in Ireland and another in Denmark.

Chief executive Tim Cook told the Washington Post earlier this month: "I hope that we get a fair hearing. If we don't, then we would obviously appeal it."

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