Apple faces €13bn tax bill in Ireland
Apple must pay €13bn in back taxes to Ireland, according to a ruling by the European commission. Agreements between the company and Irish tax authorities from 1991-2015 were found to be a form of illegal state aid. Under such arrangements, Apple attributed profits to a “head office” in Ireland that only existed on paper rather than to the country in which products were sold, thus avoiding tax on sales across the EU’s single market. The Irish government is calling for the ruling to be overturned so that it can maintain its low-tax base status. Apple is also expected to appeal.

Apple has warned that future investment by multinationals in Europe could be hit after it was ordered to pay a record-breaking €13bn (£11bn) in back taxes to Ireland.

The world’s largest company was presented with the huge bill after the European commission ruled that a sweetheart tax deal between Apple and the Irish tax authorities amounted to illegal state aid.

The commission said the deal allowed Apple to pay a maximum tax rate of just 1%. In 2014, the tech firm paid tax at just 0.005%. The usual rate of corporation tax in Ireland is 12.5%.

“Member states cannot give tax benefits to selected companies – this is illegal under EU state aid rules,” said the European competition commissioner, Margrethe Vestager, whose investigation of Apple’s complex tax dealings has taken three years.

Vestager’s ruling prompted an angry response from Apple and from Ireland and is likely to spark a political row between the US and the EU. The US Treasury said the ruling threatened to damage “the important spirit of economic partnership between the US and the EU”.

In a letter to customers, Apple’s chief executive, Tim Cook, claimed the ruling could deal a blow to big companies investing in Europe: “Beyond the obvious targeting of Apple, the most profound and harmful effect of this ruling will be on investment and job creation in Europe. Using the commission’s theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed.”

The commission said Ireland’s tax arrangements with Apple between 1991 and 2015 had allowed the US company to attribute sales to a “head office” that only existed on paper and could not have generated such profits.

The result was that Apple avoided tax on almost all the profit generated from its multi-billion euro sales of iPhones and other products across the EU’s single market. It booked the profits in Ireland rather than the country in which the product was sold.

Corporation tax rates in Europe Corporation tax rates in Europe.

Apple and Ireland said they intend to appeal against the ruling.

The figure of €13bn plus interest is 40 times the previous record for such a case and the equivalent of the annual budget for Ireland’s health service. Irish campaigners called for the windfall to be invested in public housing.

The taxable profits of Apple Sales International and Apple Operations Europe did not correspond to economic reality, the commission said. Vestager said: “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.”



Vestager suggested other countries, including the US, might now examine how Apple did business within their borders. These other jurisdictions might then claim a share of the unpaid tax from Apple for the same period. This would reduce the bill owed to Ireland.

Tim Cook, Apple CEO. Photograph: Justin Sullivan/Getty Images

Tim Cook, Apple’s chief executive, said the commission was rewriting Apple’s record in Ireland, overriding Irish law and disrupting the international tax system. He said Apple chose the Irish city of Cork as its European base 30 years ago and had expanded from 60 workers to almost 6,000 in Ireland.

He said Apple would appeal and that he was confident of winning.

Cook said: “We never asked for, nor did we receive, any special deals. We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid.”

The commission’s decision is a rebuff to US efforts to persuade it to drop the case after warnings of retaliation from Washington.

Apple, which changed its tax arrangements with Ireland in 2015, should easily be able to pay the huge tax bill because it has a cash mountain of more than $230bn (£176bn) of cash and securities, mostly held outside the US. The tech group keeps the money outside the US because it would be forced to pay US tax charges if it repatriated the money.

The €13bn figure covers only the 10 years before the commission first requested information in 2013. The commission, which does not have the authority to go back any further, said it was up to Ireland to collect the tax from Apple.

The Irish government, however, wants the ruling reversed because it wants to preserve its status as a low-tax base for overseas companies.

Ireland’s finance minister, Michael Noonan, said Dublin would appeal 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.”

A cabinet meeting will be held in Dublin on Wednesday to discuss the fallout from the ruling. At the heart of the Fine Gael-led administration’s objections is that it would cause Ireland reputational damage in the eyes of other mainly US multinationals thinking of establishing their European base in the Republic.

Fine Gael, the main opposition party Fianna Fáil, and a host of independent deputies serving as ministers in the coalition government support the low-tax regime for multinationals because it has created hundreds of thousands of jobs.

Richard Murphy, a tax campaigner and a professor in international political economy at City University in London, said: “This is a great day for the sovereignty of the EU’s nations when it comes to tax. They will now be able to choose their own tax policies knowing another state should not be consciously undermining them when doing so. The Irish state has for too long been committed to tax abuse, unfair competition and secrecy, all of which are designed to undermine fair competition and increase inequality.”



Prof Louise Gracia of Warwick University business school said: “This ruling is a serious attempt at curtailing the power large multinationals have in avoiding their tax liabilities, and sends a warning to countries that facilitate hard-edged corporate tax minimisation strategies.”

She added: “It also shines a spotlight on the paltry levels of corporate tax that large multinationals are actually paying. Even if we accept the job and wealth creation arguments put forward by multinationals as mitigation against tax liability, this has to be within reason.”

Toby Quantrill, Christian Aid’s principal adviser on economic justice, said: “The staggering amount of money at stake here suggests that millions of citizens are paying a painfully high price for multinationals’ cosy tax deals with certain governments.

“This is not a one-off situation – it is part of a damaging race to the bottom in which governments are competing on who can offer multinationals the lowest tax bill. It’s time to get multinationals’ tax affairs out in the open, so we can all see how much they are actually contributing to the rest of society.”

In the US Peter Kenny, senior market strategist at Global Markets Advisory Group, said it was not yet clear which side would ultimately prevail, but that the ruling was a watershed moment. “There’s no telling whether the verdict will stand on appeal, but we know that the landscape is changing for US corporations in the EU.”

He described Vestager’s ruling as “just the tip of the spear – an enormously important ruling” because US-based companies “have traditionally used the EU as a way of circumventing a higher US corporate tax code.”

Apple’s share price, however, was largely unmoved. In a note to investors, Gene Munster, analyst at Piper Jaffray, said the €13bn potential bill was not a big deal for the huge company. “While the penalty is large in absolute terms, it represents a small portion of AAPL’s [Apple’s] overall valuation.”

It is not yet clear which side will be backed by either of the 2016 presidential candidates. Republican Donald Trump has said he would force US companies, Apple in particular, to move manufacturing jobs within the nation’s own borders, rather than allowing them to seek cheaper labour overseas. He has also said he would lower the US corporate tax rate.

His Democratic rival, Hillary Clinton, has also hinted that she might lower the corporate tax rate. She has closer ties to Apple than Trump. Cook held a fundraiser for Clinton on 24 August.