At Issue in Apple-EU Tax Case: Did Ireland Take Enough?
August 30 2016 - 1:39PM
Dow Jones News
By Stu Woo and Sam Schechner
This is the question at the heart of the dispute between
European Union regulators and Apple Inc.: How much value do Apple's
offices in Ireland contribute to the company's massive profit
across a big chunk of the world?
Regulators in Brussels concluded Tuesday that Apple and Irish
tax authorities understated the answer to that question by tens of
billions of dollars. EU antitrust authorities ordered Ireland to
claw back about 13 billion euros ($14.5 billion) in what they
describe as unpaid taxes from the company. Citing EU prohibitions
against "state aid," Brussels said two tax deals between Ireland
and Apple constituted illegal tax benefits.
Apple and Ireland disagree, saying they will appeal the
decision.
Apple, the world's most valuable company by market
capitalization, is the most prominent multinational company to face
such scrutiny from EU regulators. They have previously ruled that
Starbucks Corp., in the Netherlands, and Fiat Chrysler Automobiles
NV, in Luxembourg, have received illegal state subsidies, ordering
claw backs of between 20 million and 30 million euros, in each
case. They also took aim at a handful of multinationals, including
brewer AB InBev NV, in Belgium.
All three countries have appealed, and all companies involved
have said they pay their fair share of taxes. Still to come:
possible state aid claims against Amazon.com Inc. and McDonald's
Corp., both in Luxembourg. Both companies say they pay fair
taxes.
Apple has based a major international division, called Apple
Sales International, in an office in Cork, Ireland, and has nearly
6,000 employees across the country. The unit, which is in charge of
sales in Europe, the Middle East, Africa and India, generated more
than $22 billion in pretax profit in 2011, said a 2013 U.S. Senate
report.
Yet the unit paid Ireland income taxes of less than EUR10
million for 2011, EU regulators said, representing an effective tax
rate of 0.05%. That is well below Ireland's 12.5% corporate tax
rate. EU regulators said Tuesday that Apple paid that amount
because of a tax agreement between the company and Irish tax
officials that the two sides struck in 1991 and updated in 2007.
Under those agreements, only EUR50 million of that $22 billion
(EUR16 billion) were considered taxable in Ireland, the regulators
said.
EU regulators said that besides that EUR50 million and some
funds that Apple's Irish units send to U.S. operations for research
and development (about $2 billion in 2011, according to the Senate
report), the bulk of the remaining money sits untaxed by any
country. The Senate said this arrangement allowed the company to
stockpile about $74 billion in profits made outside the U.S.
between 2009 and 2012.
Apple reorganized its Irish structure last year. An Apple
spokesman said Tuesday that the company's Ireland operations are
now Irish tax residents and paid $400 million in taxes in 2014.
Apple says it would pay American taxes on any funds it sends from
its foreign operations to the U.S.
EU regulators started increasing their scrutiny of tax deals
between EU countries and multinational corporations in 2014,
bringing to bear one of the bloc's biggest weapons -- state aid
rules -- as part of a broader push by politicians to rein in tax
avoidance by big companies. The probes focused on whether countries
gave sweetheart tax deals to corporations to attract jobs.
John Cassels, a partner at London law firm Fieldfisher who
specializes in EU competition law, said he thought EU regulators
had enough evidence to bring forth their case. But he added that "I
don't think Ireland is out of line with what other member states
have done."
Write to Stu Woo at Stu.Woo@wsj.com and Sam Schechner at
sam.schechner@wsj.com
(END) Dow Jones Newswires
August 30, 2016 13:24 ET (17:24 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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