By Natalia Drozdiak in Brussels and Sam Schechner in Paris
The European Union's antitrust regulator has demanded that
Ireland recoup roughly EUR13 billion ($14.5 billion) in taxes from
Apple Inc., after ruling that a deal with Dublin allowed the
company to avoid almost all corporate tax across the entire bloc
for more than a decade--a move that could intensify a feud between
the EU and the U.S. over the bloc's tax probes into American
companies.
The tax payment is the highest ever demanded under the EU's
longstanding state-aid rules that forbid companies from gaining
advantages over competitors because of government help.
In a statement Tuesday, Apple said it would appeal the decision.
Chief Executive Tim Cook, in an open letter, said: "Apple follows
the law and we pay all the taxes we owe."
Irish Finance Minister Michael Noonan said "I disagree
profoundly with the Commission's decision," adding that the country
would appeal the decision in order "to defend the integrity of our
tax system."
The European Commission said the tax arrangements Ireland
offered Apple in 1991 and 2007 allowed the company to pay around 1%
to almost zero tax on its European profits for more than 10 years,
between 2003 and 2014, by designating only a tiny portion of its
profit to a taxable Irish branch.
"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," said
European antitrust commissioner Margrethe Vestager, adding that
Apple's structure in Ireland "did not have any factual or economic
justification."
Shares in Apple fell more than 2% in premarket trading in Europe
shortly after the decision was announced. Ms. Vestager said Tuesday
that Apple would be expected to pay taxes in Ireland in the future
based on the ruling, something that could entail billions in extra
tax payments a year for the company going forward.
The U.S. Treasury Department has sharply criticized the EU's tax
investigations, arguing that the bloc unfairly targets American
companies and acts inconsistently with international tax norms.
On Tuesday, a spokesperson said the Treasury Department was
disappointed with the commission's decision and reiterated that
"retroactive tax assessments by the commission are unfair, contrary
to well-established legal principles, and call into question the
tax rules of individual Member States."
The White House has previously accused the EU of angling to tax
income the bloc doesn't have a right to tax. Ireland will need to
ensure Apple returns the money, regardless of which entity it comes
from--including its offshore holding company that is used as a
mechanism for deferring U.S. taxes.
Ms. Vestager said the amount Ireland needs to recover could be
reduced if U.S. authorities required Apple to pay larger amounts on
its profits. But she also defended the EU's claim on the
revenue.
"This has to do with profits generated in Europe and recorded in
Europe, " Ms Vestager said. "Whatever the issue Apple may have with
the U.S. tax code is not an issue for us."
At issue in the decision is how Ireland allowed Apple to
allocate profit, largely at an Irish-registered unit called Apple
Sales International, which purchases Apple goods from its outside
manufacturers and sells them at a markup outside the
Americas--generating big profits.
In 2011, under the Irish tax ruling, the unit brought in EUR16
billion in profit, and allocated under EUR50 million of it to
Ireland where it was subject to taxation, Ms. Vestager said. The
rest was allocated to a "head office" within the unit that had no
activity or employees, and was untaxed, Ms Vestager said. As as
result, she said the unit had effective tax rate that year of
0.05%.
Ireland changed the law that allowed for a company like Apple
Sales International to have no tax residency effective in 2015, and
the EU says that Apple canceled its tax rulings that year. But it
is unclear how Apple's tax arrangements may have changed since or
whether it now pays more tax to Ireland, the U.S. or other
countries.
The decision against Apple and Ireland sets off a shockwave for
multinational companies. Firms are already facing a slow-moving
effort to update global tax rules to rein in the future use of
legal structures many companies use to shift billions of dollars in
profit to tax havens. Now the EU is showing how costly enforcement
action on past behavior can be--even for the world's largest
firms.
European companies, including Fiat Chrysler Automobiles NV, have
also entered the commission's firing line over their tax deals with
EU governments. But the Apple case dwarfs the Fiat case, where the
company was only required to pay back as much as EUR30 million in
taxes.
The commission also continues to investigate Amazon.com Inc. and
McDonald's Corp. over their tax arrangements in Luxembourg.
Companies also face increasing enforcement efforts at a national
level. Tax authorities in Spain and France have raided Google's
offices. French authorities have demanded more than EUR1 billion in
back taxes and fines. Google says it pays all the tax it owes.
On Tuesday, Ms. Vestager also said that she expected individual
countries to use evidence in the EU ruling to pursue back taxes
against Apple at a national level. That wouldn't necessarily boost
Apple's bill under the EU ruling, however, because those other
back-tax payments could reduce the possible payments due to
Ireland, she said.
Those enforcement efforts, paired with new tax rules proposed by
the bloc in June, could eventually redirect billions of euros in
non-U.S. profits from companies like Apple, Alphabet Inc.'s Google
and Facebook Inc. to European governments that are currently held
offshore. The rules could also speed structural change at some of
the world's biggest technology companies, including Amazon.com
Inc.
Some people close to technology companies say they are being
unfairly singled out for political purposes to make an example in a
battle that should really be between the U.S. and EU over who can
lay claim to U.S. firms' foreign profits. They argue that their
behavior is no worse than companies in other industries, or
European firms' behavior.
"We make convenient punching bags," one executive for a U.S.
tech firm said.
The EU "risks chilling trans-Atlantic commerce and investment
and growth in the EU at the expense of U.S. taxpayers," said Dean
Garfield, head of the Washington-based lobby group Information
Technology Industry Council, which includes Apple, Amazon,
Facebook, Google and Microsoft Corp.
Richard Rubin contributed to this article.
Write to Natalia Drozdiak at natalia.drozdiak@wsj.com and Sam
Schechner at sam.schechner@wsj.com
(END) Dow Jones Newswires
August 30, 2016 09:03 ET (13:03 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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