Last week the European Commission ordered Apple to pay €13 billion, or about $14.5 billion, to the Irish government. The Commission claims that Apple’s unusual taxing structure was unfair state aid. Most of Apple’s profits outside of America are earned by Irish registered subsidiaries. Through an agreement with the Irish government, most of those profits are funneled into a “head office,” which is a tax resident of no nation. The Commission criticized this deal as having no basis in law and for being a special arrangement unavailable to other companies.
This move has drawn criticism from the U.S. If Apple pays more in taxes in Europe, that could be deducted from the taxes it pays in the U.S. U.S. Treasury Secretary Jack Lew issued a statement on the matter saying, “I have been concerned that it reflected an attempt to reach in to the U.S. tax base to tax income that ought to be taxed in the United States.” E.U. officials denied that they are attempting to steal taxes from America. E.U. officials also argue that American law encourages companies to avoid taxes.
The Commission has also been accused of unfairly targeting American companies. So far, the E.U. has ordered Starbucks to pay more Dutch taxes, while Amazon and McDonald’s are still under investigation on tax related issues. The Commission has also launched multiple antitrust investigations into Google, which is seen by some as further evidence of anti-American bias. Apple CEO Tim Cook called the Commission’s decision “total political crap.” The Commission’s competition chief Margrethe Vestager denied the decision was political but stated it was “based on the facts of the case.” Vestager agreed to meet Lew later in the month to discuss Apple’ tax situation.
Apple has decided to appeal the Commission’s decision, in the hopes that the courts will see the situation differently than the Commission. The Commission doesn’t have the authority to force countries to have a higher tax rate, which is why the basis of its case is unfair state aid. The Commission claims that the arrangement was a special deal between Apple and the Irish government and wasn’t available to other companies. However, some lawyers claim the arrangement was within the laws of the nation and was theoretically available to any company.
The European Court of Justice often sides with the rulings made by the Commission; however, lawyers (unspecified by Reuters) say its is more likely to rule against the Commission in state aid cases if the state appeals the ruling. This is good news for Apple because Ireland has decided to back Apple’s appeal. Despite the fact that the Commission’s ruling would give Ireland billions of Euros, the government believes that jobs brought by multinational companies are more important for the country. Irish Finance Minister Michael Noonan stated during a press conference, “How could any foreign direct investor come into Europe if they thought the valid arrangements they made under law could be overturned a generation later and they be liable to pay back money.”