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Apple must pay $14.5 billion to get out of Irish tax dodge, EU rules

Though the $14.5 billion sum is unprecedented in size, it represents about 27 percent of Apple's $53.4 billion in profits last year and Apple probably won't pay that figure in full.

by Noah Kulwin
Aug 30 2016, 1:35pm

Apple's Irish tax dodge is over. In an unprecedented move, European Union regulators on Tuesday announced that Apple owes up to $14.5 billion in back taxes to Ireland, ruling that it charged tax rates so low they constitute "state aid."

The EU has been looking into the tax payments of Apple's Irish subsidiary for over two years and ruled the tax arrangement uncompetitive, requiring Apple to pay taxes dating back to 1991.

"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," the Commission said in a statement. "In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014."

Apple has continuously had a presence in Ireland since about 1980, and today employs about 6,000 people there. Ireland was then one of the poorest places in Europe, and Apple had a preferential tax agreement with the government from the start in exchange for opening up offices in the country. A former executive told Reuters in 2013 that the company "paid no taxes to the Irish government" for the first ten years it was there.

Over the years, Ireland in particular has become known as a haven for international corporations looking to duck taxes — there was even a popular tax avoidance scheme called the "double Irish" that many companies employed until it was finally scrapped in 2015.

In a statement responding to the European Commission's judgment, Apple CEO Tim Cook said that the Commission "is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been."

Under the leadership of Margrethe Vestager, the European Commission has heightened its scrutiny of large, powerful American companies in recent years.

The Commission is currently pursuing a major antitrust investigation against Google, and has announced multiple charges against the company. Another Commission target is Facebook, which recently changed the privacy rules for its internationally popular messaging service WhatsApp. The Commission has already ordered Starbucks to pay back taxes to the Netherlands, and a ruling on a similar matter involving Amazon and Luxembourg is expected this fall.

Though the $14.5 billion sum is unprecedented in size — it represents about 27 percent of Apple's $53.4 billion in profits last year — Apple probably won't pay that figure in full. Tim Cook said that both Apple and the Irish government plan to appeal the ruling.

Apple also has help from the U.S. government. A Treasury department white paper from last week criticized the European Commission, arguing that the agency was unfairly acting like a "supra-national tax authority."