Apple Fights $13.6 Billion Tax Bill as EU Lifts Lid on Case

Updated on
  • Apple says it asked EU court to overturn tax repayment order
  • Ireland says EU exceeded its powers in tax investigation

The Maxforce: EU Team Behind Apple's Tax Bill

Apple Inc. has set up a court battle with European Union competition watchdogs who ordered Ireland to claw back a record 13 billion euros ($13.6 billion) in unpaid taxes from the iPhone maker.

The U.S. tech giant said Monday it formally appealed the EU’s Aug. 30 decision to the bloc’s General Court in Luxembourg, as the European Commission and Ireland separately published details of their own arguments in the case.

The EU "took unilateral action and retroactively changed the rules, disregarding decades of Irish tax law, U.S. tax law, as well as global consensus on tax policy, that everyone has relied on," Apple said in a statement after filing its court appeal.

In an order that reverberated across the Atlantic, the EU slapped Apple with the multibillion-euro bill, saying Ireland granted unfair deals that reduced the company’s effective corporate tax rate. The U.S. Treasury said the EU was making itself a "supra-national tax authority" that could threaten global tax reform efforts.

Priority Status

Apple’s appeal adds to the Irish government’s challenge, already submitted to the EU court, which has given the case priority status.

In its own filing on Monday, the Brussels-based commission published details of its two-year probe, attacking the way Irish authorities taxed profits attributed to two of Apple’s Irish units. The EU also took aim at Irish tax practices, saying they were "too inconsistent" to set firm rules for profit allocation.

The Apple investigation -- and others probing arrangements for Amazon.com Inc. and McDonald’s Corp. in Luxembourg -- are the cornerstone of an EU attack on national practices officials claim help multinational companies avoid tax. EU Competition Commissioner Margrethe Vestager has repeatedly argued that special tax treatment harms companies that don’t get such advantages.

But according to the details revealed on Monday, EU regulators shrugged off claims that they weren’t fair to Ireland and Apple during the probe. They argued they always respected their procedural rights and the subject matter of the investigation -- profit allocation methods used in tax rulings -- never changed.

Ireland had "ample opportunity" to express its views and "made use of that opportunity on multiple occasions," the EU said. While Apple only had the right to submit observations, it "was given and has effectively made use of the opportunity to submit" views to regulators on numerous occasions, according to the text of the EU decision.

Arms-Length

The EU’s competition arm said it doubted that the methods used to produce taxable profit for Apple units complied with the so-called arms-length principle for financial transfers between parts of a company.

Ireland accepted the “unsubstantiated assumption” that Apple’s intellectual property licenses shouldn’t be allocated to the Irish units, the EU said, adding there’s no evidence that tax authorities analyzed a key unit’s access to the IP.

The Irish units played important roles in Apple, regulators said. For example, Apple Sales International’s Irish branch was responsible for gathering and analyzing regional data to estimate expected demand for Apple products. It was also responsible for operating the AppleCare customer support service in the region, according to the investigators. 

Exceeded Powers

Apple argues that the company’s main research operations are in the U.S. and this is where its profits should be taxed. Should the EU’s calculations stand, Apple would pay 40 percent of all the corporate income tax collected in Ireland "which is unprecedented and, far from leveling the playing field, selectively targets Apple," the company said.

Ireland considers that the EU exceeded its powers by ruling on its tax jurisdiction, according to an Irish finance ministry statement on Monday.

Ireland also challenges the EU’s determination that Apple allocated almost all its European sales profits to what the EU said were “head offices” not subject to tax by virtue of their tax status in Ireland. Apple argues the units, Apple Sales International and Apple Operations Europe, were never exempt from tax -- and that under the law they are subject to deferred U.S. tax.

“These branches carried out routine functions, but all important decisions within ASI and AOE were made in the U.S., and the profits deriving from these decisions were not properly attributable to the Irish branches of ASI and AOE,” the Irish finance ministry said.

While an EU press release in August said Apple paid only 0.005 percent effective tax on European profits in 2014, Apple has said the figure is misleading -- referring only to tax payments by the ASI unit, ignoring other tax paid by the company in Ireland and elsewhere and measured as a portion of what the EU alleges is taxable income.

Making a ‘Statement’

“From my vantage point, Apple availed of a tax structure in Ireland that was available to anyone, they got no special treatment,” said Robert Willens, an adjunct professor of finance and economics at Columbia Business School in New York. “I believe ultimately Apple and Ireland will prevail. To me, it looks like the EU is trying to make a statement with this case.”

The EU court appeals filed by Apple and Ireland follow those already pending by Luxembourg, the Netherlands and Belgium concerning tax arrangements the nations granted to units of other multinationals, including Starbucks Corp. Ireland has provided more than 300 tax rulings to EU investigators who are sifting through over 1,000 such documents on more than 300 companies.

Apple and Ireland are still working to determine the exact amount of tax due, which may be paid within weeks. The money will be held in escrow until a final ruling from the EU courts, which may take several years.

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