EU to Ireland and Apple: $14.5 billion, please

Update: Apple's CEO, Tim Cook, has posted "A Message to the Apple Community in Europe" on (opens in new tab). Here's the crux of the counter-argument, in Cook's usual cut-to-the-chase style:

The European Commission has launched an effort to rewrite Apple's history in Europe, ignore Ireland's tax laws and upend the international tax system in the process. The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals. We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don't owe them any more than we've already paid.The Commission's move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe. Ireland has said they plan to appeal the Commission's ruling and Apple will do the same. We are confident that the Commission's order will be reversed.At its root, the Commission's case is not about how much Apple pays in taxes. It is about which government collects the money.Taxes for multinational companies are complex, yet a fundamental principle is recognized around the world: A company's profits should be taxed in the country where the value is created. Apple, Ireland and the United States all agree on this principle.

But read the whole thing.

Following a two-year investigation, the European Commission has concluded that the tax breaks Ireland has been giving Apple are illegal under EU state aid rules.

From the press release:

The European Commission has concluded that Ireland granted undue tax benefits of up to €13 billion to Apple. This is illegal under EU state aid rules, because it allowed Apple to pay substantially less tax than other businesses. Ireland must now recover the illegal aid.Commissioner Margrethe Vestager, in charge of competition policy, said: "Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules. 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. 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."

You can read the rest of the press release for a breakdown of how Apple's Irish incorporated companies, Apple Sales International and Apple Operations Europe, operate in the country, the taxes they were subject to in Ireland, and the issues the EU had with the deal.

While you might think Ireland is a grown-ass country with the right and freedom to make any tax deal it wants with any companies it wants to attract and retain, Ireland is also part of the European Union, and bound by the agreements in place for the Union and the mechanisms in place to enforce those agreements.

I'm about as far from an Irish and EU tax expert as you can get, but I have seen my share of reassessments and the only thing worse than being on the receiving end of a whopping new bill is not having the cash in the bank to pay it.

Apple, the most profitable company in the history of profitable companies, obviously doesn't have that problem, but a €13 billion — approximately $14.5 billion — bill is still going to hurt. A lot.

Given the stakes, Ireland and especially Apple will certainly take advantage of every appeal process open to them.

Rene Ritchie

Rene Ritchie is one of the most respected Apple analysts in the business, reaching a combined audience of over 40 million readers a month. His YouTube channel, Vector, has over 90 thousand subscribers and 14 million views and his podcasts, including Debug, have been downloaded over 20 million times. He also regularly co-hosts MacBreak Weekly for the TWiT network and co-hosted CES Live! and Talk Mobile. Based in Montreal, Rene is a former director of product marketing, web developer, and graphic designer. He's authored several books and appeared on numerous television and radio segments to discuss Apple and the technology industry. When not working, he likes to cook, grapple, and spend time with his friends and family.

  • My biggest issue with this is the process. Basically EU countries and the EU have nothing to lose and everything to gain in what could effectively been seen as a bait and switch. Foreign corp (FC) negotiates with EU country.
    Deal is made.
    FC sets up shop, does great business.
    *X amount of years go by.*
    EU says "hey wait a minute, what's going on here? let me investigate...Ah yes, you have paid that country too little, you owe back taxes plus interest"
    FC: Wait what? Country X and I have a deal.
    EU: They shouldn't have made the deal. Please pay country X €YY Billion.
    FC: Wait what?
    Country X: Yea sorry about that... so... when will we get that €YY Billion? Now I'm going to give Ireland the benefit of the doubt that they negotiated this deal in good faith along with similar deals with other companies. That said, you can see how it can be fishy. The country giving the deal has nothing to lose because worst case, the EU says they're owed a lot of money plus interest.
  • It's not just that. The EU does annual audits of companies like Apple all the time, usually Once a year Apple gets their taxes Audited by the EU.. So, for decades, the EU has said it's OK.. but now, it's suddenly not. I can understand changing existing law to fit the times and close a loophole going forward. Really though, EU was reaching. This was a push to drive Apple business out of Ireland, pure and simple.
  • Thanks to lobbying from the US and corporations such as Apple the EU has turned a blind eye to Apple and Ireland breaking the rules for years. The new competition commissioner doesn't seem as easily swayed though. Apple broke EU rules, and should pay back the amount owed. They were effectively paying less than 1% on profits generated in the EU which was not only utterly egregious when many individuals are being subjected to government cuts, but anticompetitive towards its competitors both small and large.
  • "Apple broke EU rules" But Apple and Ireland set up the deal years before the EU was formed.
  • EEC precedes the EU and Ireland was part of it. The article in question was already in the Treaty of Rome of 1957
  • "It's not just that. The EU does annual audits of companies like Apple all the time, usually Once a year Apple gets their taxes Audited by the EU.." Source for that?
  • This and Solamar's posts are my issues. Many decisions were made on this good faith estimate, and now the "Hey, Apple can afford it" mindset makes this easier to pass. It should be, "Look, let's settle this. We are nullifying this arrangement as of 1 Jan 2017 (to give Apple and Ireland time to make a deal the EU agrees with). Here is a fine of €2 billion (for example. not decades worth of this crap). The problem is this wouldn't pass in the private world. But governments have no competition, so they can get away with it.
  • I've seen comments since this started breaking mention the word loophole as though this is what has been used here. That's not the case, as a loophole would be available to all companies to exploit. This is specifically between Apple and Ireland tax authorities and so calling it a loophole is misleading. Whilst I'm an Apple fan, I'm also an accountant (nearly chartered) and can't help but side with the EU here. Tax law is full of issues related to transfer pricing but sweetheart deals between companies and the tax authorities make it even worse.
  • Im Irish and Its good to see our government appealing this and siding with Apple. If this "Special Deal" is true then apple Should pay us the 14.5 billion euros but i just hope it wont have repercussions for the Irish people working in Apple HQ in Ireland and if Apple were to leave and go abroad it would also leave to people losing their jobs in Ireland. but I can see both sides of the story and positives and negatives to both
  • If it was indeed a special deal (Apple claims every one had access to this), Apple shouldn't be on the hook for the back taxes. This needs to be between Ireland and the EU. I'm not a lawyer but from what I'm reading, this is an excerpt from a CBS article:
    EU Competition Commissioner Margrethe Vestager said Tuesday: “Member states cannot give tax benefits to selected companies -- this is illegal under EU state aid rules.” If it was a special deal, Ireland gave it to Apple, not vice versa. I'm not sure if the EU (the enforcement arm I suppose) can actually punish member states, but that's for the member states and the EU to decide.
  • No. Apple were fully complicit in breaking the rules along with the Irish government, leading to a tax arrangement which meant that Apple weren't headquartered anywhere on planet Earth and thus weren't taxed at all on their profits. Starbucks and Fiat have been fined for similar deals in Luxembourg. Smaller companies aren't privy to these special arrangements hence they are quite rightly deemed to be anticompetitive.
  • "No. Apple were fully complicit in breaking the rules along with the Irish government" Except they set up the deal before the EU came into existence, before there were any EU rules on this sort of thing.
  • Apple, which enabled it to pay substantially less tax than other businesses over many years. 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."
  • My tax rate 2014/15:
    20% and a little 40% My wife's tax rate 2014/15
    20% Apples tax rate 2014/15
    0.005% something not right.
    i work hard for my money and pay all taxes due, so should Apple.
  • There has been no evidence of this deal at all from the EU
  • From Washington Post Article. "The tax law right now says we can keep that in Ireland or we can bring it back. And when we bring it back, we will pay 35 percent federal tax and then a weighted average across the states that we’re in, which is about 5 percent, so think of it as 40 percent. We’ve said at 40 percent, we’re not going to bring it back until there’s a fair rate. There’s no debate about it. Is that legal to do or not legal to do? It is legal to do. It is the current tax law. It’s not a matter of being patriotic or not patriotic. It doesn’t go that the more you pay, the more patriotic you are. And so what we’ve said — we think it’s fine for us to pay more, because right now we’re paying nothing on that and we leave it over there. But we — like many, many other companies do — wait for the money to come back. In the meantime, it’s important to look at what we do pay. Our marginal rate, our effective rate in the U.S. is over 30 percent. We are the largest taxpayer in the United States. And so we’re not a tax dodger. We pay our share and then some. We don’t have these big loopholes that other people talk about. The only kind of major tax credit that we get is the R&D tax credit, which is available to all companies in the United States. That’s important to know. The second thing I would point out is we have money internationally because we have two-thirds of our business there. So we earn money internationally." "I hope that we get a fair hearing. If we don’t, then we would obviously appeal it. 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. The structure we have was applicable to everybody — it wasn’t something that was done unique to Apple. It was their law. And 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. And so there’s a tug of war going on between the countries of how you allocate profits."
  • "fair" is the definition here... A fair hearing to Apple often means "in their favor" Previously, they already said in a statement "They would pay up", which i take that as "They already know they are in the wrong and will accept the outcome" Otherwise, why would Apple have said it? It's not just because it sounds better... They said it, because i reckon it meant something.
  • Apple needs to pay its fair share. Fair is Fair. < /hillary >
  • EU is like Soviet Union, they think that they can do what ever they want… Sent from the iMore App
  • Love or hate Apple, they have been finding tax loopholes for years and years and probably spend more money than any other company on experts finding these loopholes, because they have the means. The fact is that Apple does not pay their fair share of tax. Not in the EU, not in Australia or New Zealand or virtually every other country in the world.
    What makes it even worse is the fact that Apple constantly place so much emphasis on all the amazing things they do. Whether it's for the environment or people rights, they sell this image that they stand for all that is good.
    Most of the workers assembling the millions of iPhone 7s as we speak can't afford to buy one and work in conditions that most of us couldn't bare the thought of.
    So this company we put on a pedestal is not as squeaky clean as they portray themselves and they should pay up. They won't and they will fight it and get the powers that be in their back pockets eventually, but they should. Sent from the iMore App
  • You bet they would.... Apple will fight it out like they do everything to win in their favor... However, If businesses can do this "it's haled as "ok" by the business" eg like Apple for instance, but if employees try and pay "less tax" it's far worse.... Companies should be abiding by the same rules we users do who work for "them in the same country" and if that doesn't happen, then companies should be jailed or whatever laws applicable.. For example, I don't exactly say, I'm not gonna pay tax in Australia, but i will in another country,,, I can't get away with that, so why should businesses? At the other end of the scale, its a good job Apple is paying less tax, because i'm sure they need all that extra money for building.. :P Have we noticed an increase in Apple store opening up and what about Campus 2 ? I don't think Apple would have been able to afford this if they were paying U.S tax.
  • Do you not take advantage of deductions, etc. that are allowed? If so, you are trying to pay "less tax" If you worked in two countries, you would have to pay taxes in both... As far as "fair share" people love to say this, Politicians, especially. But yet nearly no one seems to support a fair tax/use tax. Which is truly the fairest of all.
  • You miss the point.. Your still paying tax in "that country u'r working".
    While Apple would pay much lower from other country other than the U.S where they are.. i would actually classify that as "fraud". since by law, why should someone decide how how tax to pay ? If Apple can decide this, because of paying a "much lower" tax (this is different than a deduction, because u claim deduction of tax in "the same country as u are".) not from a different country u do not work currently.
  • You do know that none of this income is on anything sold in the US, right? And it is not fraud. You don't have to like it, but calling it fraud because you don't is wrong.
  • It's just there Euro profits but yes there was no deal and our government is siding with Apple and appealing this to Europe