Apple Faces Giant European Tax Penalty

The European Commission’s three-year investigation into Apple’s Irish tax operations is set to conclude today and it is expected the iPhone maker will be slapped with a colossal tax penalty.

Brussels has ruled that Apple received illegal state aid from Ireland, according to the Financial Times, with the company facing a bill of billions of euro in back taxes.

Margrethe Vestager, the EU’s competition commissioner, has concluded the investigation with a 130-page judgement that Apple benefited from tax options that were not available to competitors. These two advance tax opinions from Dublin broke EU law, ruled the European Commission (EC).

Reuters has reported that the EC will advise that Apple should pay more than one billion euro in back tax. Both Apple and Dublin have denied that Apple benefitted from sweetened tax deals.

Subsidiaries

The official Commission investigation into Apple’s European tax practices began back in June 2014.

Essentially, Apple (and other firms) are under the spotlight after regulators accused it of using subsidiaries in Ireland to avoid paying taxes on revenue generated outside the United States.

The EC’s concern stem from Apple’s corporate arrangement in Ireland, which allows it to “calculate profits using more favourable accounting methods.”

Apple calculates its tax bill using low operating costs, which dramatically decreases what the company pays to the Irish government.

While Apple generates about 55 percent of its revenue outside the US, its foreign tax rate is about 1.8 percent, according to the Bloomberg analysis. It said that if the Commission decides to enforce a tougher accounting standard, Apple may owe taxes at a 12.5 percent rate, on $64.1 billion (£44.6bn) in profit generated from 2004 to 2012.

But the US Treasury has urged Europe to drop the case, claiming that the incident could create “unfortunate precedent”. Tim Cook, Apple’s CEO, has also argued that the international tax system is flawed, with Apple unable to get a fair hearing.

He told The Washington Post: “Let me explain what goes on with our international taxes. The money that’s in Ireland that he’s probably referring to is money that is subject to U.S. taxes. The tax law right now says we can keep that in Ireland or we can bring it back.”

“It’s important for everyone to understand that the allegation made in the E.U. is that Ireland gave us a special deal. Ireland denies that,” he said. “The basic controversy at the root of this is, people really aren’t arguing that Apple should pay more taxes. They’re arguing about who they should be paid to.”

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