U.S. Treasury Chief Lew Set for Apple Tax Showdown With EU

  • EU regulator said to review draft decisions in Apple tax case
  • Lew will meet Vestager on Wednesday as EU ruling looms

Margrethe Vestager

U.S. Treasury Secretary Jacob J. Lew is set to meet with European Union antitrust chief Margrethe Vestager this week as she prepares to deliver a final verdict on a probe into Apple Inc.’s tax affairs in Ireland.

The showdown comes days after Vestager’s team came up with two possible scenarios on how much tax Apple owes in Ireland, according to two people familiar with the case, who asked not to be identified because the matter is private. Lew has contacted Vestager urging her to avoid ordering any collection of back taxes from Apple, according to one of the people.

Conflict over trans-Atlantic tax practices escalated in February as Lew complained to European Commission President Jean-Claude Juncker that U.S. firms are unfair targets of state-aid investigations. The Treasury Secretary’s letter came after EU enforcement focused on fiscal pacts Apple, Amazon.com Inc. and McDonald’s Corp. have with Ireland and Luxembourg. The companies all say they acted within the law.

Vestager has repeatedly denied she’s deliberately taking aim at U.S. firms, insisting that probes into tax rulings are part of the watchdog’s responsibility to police fair competition within the EU. Clawing back undue advantages -- as was the case when Starbucks Corp. was ordered to pay as much as 30 million euros ($33 million) in back taxes to the Netherlands -- simply restores equal treatment, she insists.

The commission’s press office and the Treasury Department didn’t comment beyond confirming the Brussels meeting on Wednesday. Apple declined to comment.

Irish Jobs

The EU opened the Apple probe in 2014, and, in preliminary findings, said its tax arrangements were improperly designed to give the company a financial boost in exchange for jobs in Ireland. The Irish government has said it will “vigorously defend’’ any adverse Apple tax decision.

The company told a European Parliament panel earlier this year that it has “paid every cent of tax that is due in Ireland.”

Irish Finance Minister Michael Noonan said last month the EU decision could come as soon as July, though he also suggested that the U.K. vote to quit the EU may trigger delays. The finance ministry couldn’t immediately comment on timing.

Tight-Lipped

Vestager has remained tight-lipped about the possible amount that Apple could be ordered to pay back to Ireland should regulators decide that the company received illegal tax breaks.

In a worst-case scenario, Apple may face a $19 billion bill if the government ultimately loses and is forced to recoup tax from the company, according to JPMorgan Chase & Co. analyst Rod Hall. Matt Larson of Bloomberg Intelligence puts the potential figure at more than $8 billion.

Brussels lawyers speculate that the final amount could be much less, in the hundreds of millions range -- large enough to send a message to companies like Apple and the countries that dole out tax breaks, but not too large to risk creating havoc in case the decisions get overturned in the EU courts.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE