european commissionThe EC (European Commission) made an announcement stating that Apple now must pay over $14 billion in back taxes.  The EC asserted in their expected ruling, that the Irish government showed tax favoritism to Apple that wasn’t similarly extended to other companies.  This favoritism allowed Apple to pay an effective tax rate of one percent or less from 2003 to 201.

It was argued by the EU that this amounted to “illegal state aid” in the amount of about $14.5 billion which has to be collected by Ireland:

This selective tax treatment of Apple in Ireland is illegal under EU state aid rules, because it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules. The Commission can order recovery of illegal state aid for a ten-year period preceding the Commission’s first request for information in 2013. Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest.

In fact, the tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market. This is due to Apple’s decision to record all sales in Ireland rather than in the countries where the products were sold. This structure is however outside the remit of EU state aid control. If other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland.

Although it’s the EC stating this information, they won’t be the ones collecting the taxes, as it’s the government’s responsibility.  The ruling is part of a bigger crackdown by the EC on the tax policies of individual governments, like The Netherlands and Luxembourg, in addition to Ireland.  The idea behind this issue is to try stamping out aggressive tax policies used by governments to lure foreign companies to set up shop in their countries.  This issue is ultimately between EU member states and the EC.  Ireland specifically has been quite successful in getting US companies to set up European headquarters there.

It’s been several years since the Ireland-Apple tax investigation started, and was motivated, at least partially, by an economic need to collect more taxes from large corporations as European national economies had been suffering from a recession back in 2008, and counter-productive European austerity policies.

Although there is a cry of corporate “tax avoidance” by the US, it’ll probably strongly protest that the EC is overstepping their authority in this situation.  It’s believed by a number of US officials that there’s an anti-American dimension at play.  They feel that American companies are being targeted by Europe with tax and antitrust enforcement policies.

It’s possible that both Ireland and Apple will be able to appeal the EC’s determination to the European Court of Justice.  But unsurprisingly, these appeals can take years to deal with.

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