Apple Faces Potential £5.6bn European Tax Bill

Apple could be facing a very large tax bill in Europe after an investigation of its tax policies by the European Commission (EC).

The Commission is due to make a decision on its findings as soon as March this year, but an analysis by Bloomberg Intelligence has predicted that Apple could owe as much as $8 billion (£5.6bn) in back taxes.

Tax Probe

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. According to Bloomberg, Apple has already said it will appeal any adverse ruling.

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

According to the American publication, 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.

Tax Avoidance?

In 2013 Apple was forced to defend its US tax arrangements after being labelled as one of America’s largest tax avoiders by a Senate Committee.

That came after Apple allegedly avoided hefty tax bills by declaring companies registered in the Irish city of Cork, as not tax resident in any country. Apple has been accused of avoiding about $40bn (£25bn) in US income taxes in 2012 alone, using this method.

The iPad maker is also currently being investigated by the US Internal Revenue Service.

There was no suggestion that Apple has been doing anything illegal, and CEO Tim Cook has previously blamed the US tax system for the issue.

Last month Apple reportedly opted to settle a corporate tax dispute with the Italian tax office, and agreed to hand over 318m euros (£235m). It had faced allegations that it had failed to pay corporate taxes to the tune of 879m euros (£649m).

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