An “unfair” tax advantage granted to Apple by Ireland over the years means the company could owe more than $14.5 billion in unpaid taxes, the European Commission announced today. Both Apple CEO Tim Cook and the Irish Finance Ministry said they plan to appeal that decision.
Officials with the European Commission said their investigation, first launched in 2013, found a deficiency stemming from Ireland’s past methods for splitting company profits between different entities for tax purposes. In Apple’s case, most of the company’s profits were counted as being “stateless” rather than Europe-based, meaning they were not subjected to the same levels of taxation, according to the officials.
In 2011, for example, commission officials said that Ireland-based Apple Sales International reported $17.8 billion in European Union profits, most of which went untaxed, with an effective Irish tax rate of $557 for every $1.1 million in profit. In 2014, Ireland’s effective tax rate on that division of Apple was even lower, amounting to $56 per $1.1 million in profits, the commission said.
EC: Ireland Gave ‘Illegal State Aid’
“Apple’s tax benefits in Ireland are illegal,” European Commissioner Margrethe Vestager said in a press conference held in Brussels today. The commission’s investigation found that Ireland had “artificially reduced Apple’s tax burden for over two decades,” she said.
Those tax policies amounted to “illegal state aid” that gave Apple an unfair advantage over other companies operating in Europe, Vestager added. Apple has had a presence in Ireland since 1980, when it opened a factory in Cork. However, the commission can only seek back taxes for the past decade. The tax deficiency identified by Vestager covers the years 2003 through 2014.
Almost all of Apple’s tax bill is due to the fact that Ireland attributed most of the company’s European profits to the “so-called head office” rather than to Apple’s Irish branch office, Vestager said. That head office existed only on paper: “It has no employees, no premises, no real activities,” she said.
Cook Criticizes ‘Unprecedented Move’
Since the findings of the investigation were announced, both Apple and Ireland have said they plan to appeal the commission’s conclusion.
“The Commission’s move is unprecedented and it has serious, wide-reaching implications,” Apple CEO Cook (pictured above) said in an open letter to the Apple Community in Europe posted on the company’s Web site today. “It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been.”
Stating that Apple “follows the law and we pay all the taxes we owe,” Cook noted that his company is also “the largest taxpayer in Ireland, the largest taxpayer in the United States, and the largest taxpayer in the world.”
Irish Minister for Finance Michael Noonan echoed Cook’s vow to appeal the commission’s decision. “It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment,” he said.
Noonan’s announcement has since generated a number of critical tweets. Twitter user Ian Carruthers, for example, wrote, “I wonder how quick the government would have people into court if we suddenly decided not to pay our own tax? Mind boggling stuff.” Another Twitter user, Matt Cooper, noted, “Imagine winning the Lotto and refusing to collect your winnings. Why would you do that?”
Just last month, Facebook revealed that it had received a notice of tax deficiency from the Internal Revenue Service related to questions about how that company values its overseas holdings, particularly in Ireland. The deficiency could amount to $3 billion to $5 billion in back taxes, Facebook said.
