Apple on the Hook for $14.5 Billion in European Tax Case

By

Following a three-year investigation, the European Commission announced on Tuesday that it had found that Apple received “selective tax treatment” from Ireland and ordered the tech giant to repay 13 billion euros to the country. The amount, equivalent to $14.5 billion, is a significantly higher cost than Apple is used to paying Ireland, which taxed the iPhone maker at rates as low as 0.005 percent. The standard corporate tax rate in Ireland is 12.5 percent, though many tech companies use it as a haven for business in Europe.

EU Competition Commissioner Margrethe Vestager laid out how Apple managed to avoid corporate taxation. “Whether you buy your iPhone in Berlin or Rome, you contractually buy it from Apple Sales International in Cork,” she said. Apple Sales International is a stateless corporation which, according to Vestager, exists only on paper and has no employees. Payments using money from sales in Europe are then sent back to the mothership in California to finance research and development.

Both Apple and Ireland have pushed back against the ruling. Ireland has said it will appeal the ruling, stating, “Ireland’s position remains that the full amount of tax was paid in this case and no State aid was provided. Ireland did not give favourable tax treatment to Apple. Ireland does not do deals with taxpayers.”

In a letter to customers, Apple CEO Tim Cook expressed a similar sentiment in an open letter published this morning.

Over the years, we received guidance from Irish tax authorities on how to comply correctly with Irish tax law — the same kind of guidance available to any company doing business there. In Ireland and in every country where we operate, Apple follows the law and we pay all the taxes we owe.

To clarify, nobody is saying that Apple didn’t pay what it owed. The EU is saying that Ireland gave Apple an unfairly low tax rate as state aid.

Cook’s primary line of defense is that the EU is trying to collect taxes on a company that is creating value outside its borders. “A company’s profits should be taxed in the country where the value is created,” he wrote. “Apple, Ireland and the United States all agree on this principle.”

The U.S. Treasury Department expressed similar disappointment at the EU’s ruling. The appeal will likely take years, and the final amount Apple will owe, if any, remains up in the air. As of last month, Apple had $232 billion in cash, $214 billion of which was held overseas.