The European Commission has ruled that Ireland has broken state aid laws by giving Apple illegal help with tax breaks. As a result it has ordered Apple to pay up to €13bn (£11bn) and interest in Irish taxes. It is illegal under state aid rules for EU countries to grant tax benefits or advice to any private company, which is what the commission is accusing Ireland of doing for Apple’s benefit.
The €13bn will cover the 10 years before the commission first requested information in 2013.
The commission has found that arrangements made by Ireland between 1991 and 2015 had allowed Apple to attribute sales to a “head office” that only existed on paper and did not generate stated profits.
This has meant that Apple has avoided tax on nearly all profits across the EU’s single market by attributing profits to Ireland’s head office rather than where the products themselves are sold across Europe.
European competition commissioner, Margrethe Vestager has 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.”
The commission has said that Apple’s taxable profits of Apple Sales International and Apple Operations Europe do not reflect economic reality. Apple paid a tax rate of 1% in 2003 for profits on Apples Sales International. This rate then dropped to 0.005% in 2014.
Ireland’s finance minister, Michael Noonan has confirmed that Dublin will be appealing against the ruling. He said: “The decision leaves me with no choice but to seek cabinet approval to appeal. This is necessary to defend the integrity of our tax system, to provide tax certainty to business and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation.”
The European commission has been investigating Apple’s tax affairs with Ireland for three years. Deals made with Ireland have allowed Apple to pay very little tax on profits gained in Europe. The formal inquiry was opened in 2014 after initial findings found that state aid was incompatible with the EU’s single market.
Anneliese Dodds, a British member of the European parliament has praised the EU’s decision to hold Apple accountable for tax avoidance.
“Once again the EU is showing that it leads the way in the fight for tax justice. If the commission has found that the Irish government arranged a special sweetheart deal for Apple in the early 1990s, then it is absolutely right to call an end to this practice and demand that Apple repay the money that it has avoided in taxes for over twenty years.”
Tax avoidance is a problem that seems to be gaining more and more public attention with people boycotting brands who seek to avoid paying into the tax system of the countries they’re making money from. With governments fearful of appearing too demanding and scaring away big businesses, it’s not a problem with an easy solution some might say.
It’s for the same reason that the UK plans to further cut corporation tax to such a competitive low rate. However, this move from the EU sends a clear message to governments and big businesses everywhere.
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About The Author
An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.