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Apple Faced with Fresh EU Challenge on Billion-Euro Tax Bill

Michael Behr

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Apple

At stake is more than just 13 billion euros of tax revenues – there is also the power of the EU to tax multinational companies and Ireland’s status as a home to tech majors.

An Apple victory in a tax dispute with the European Union could be short-lived as the bloc tries to overturn the previous court verdict.

The EU has said that the judges used ‘contradictory reasoning’ in the July verdict that decided that the US tech giant’s Irish subsidiaries were not liable for 13 billion euros (£11.46 billion) of back taxes.

According to EU competition officials, the Irish government made a deal with Apple to give it an unfair advantage over other companies. Such a move would be illegal under EU law, meaning Irish tax authorities would have to collect the billions of euros owed in back taxes.

The original decision to pursue Apple was made by the European Commission in August 2016 after a two-year investigation. Once penalties and interest were taken into account, it would have amounted to close to 20 billion euros, the largest corporate tax fine in history.

However, an appeal by the Irish Government led the EU General Court to rule that authorities had failed to show that Ireland or Apple violated international law to ‘the requisite legal standard’.

At the time, Dutch MEP Paul Tang noted that this amounted to Apple paying 0.05% tax rate on its taxable profits from 2004 to 2014, a sum of around 110.8 billion euros.

The 13-billion-euro figure was reached by applying Ireland’s regular corporate tax rate of 12.5%.

Now, the EU is appealing based on an argument that the General Court judges did not properly engage with the legal arguments. Partly, this is based on an incorrect association between two separate issues – one of Apple not employing staff at two of the Irish units and the other with unrelated intellectual property issues.

According to Apple: “The General Court categorically annulled the Commission’s case in July and the facts have not changed since then. This case has never been about how much tax we pay, rather where we are required to pay it.

“After a thorough review of the facts and the commission’s claims [the judges were] clear in their determination that Apple has always abided by the law in Ireland, as we do everywhere we operate.”

European Commissioner Margrethe Vestager has been investigating national tax rulings that she claims have been made to provide illegal subsidies to large multinational firms. The EU has been moving to close these tax loopholes that it sees as a way for companies to pay less tax.

The defeat in July was a major blow to the EU’s plan.

Failure to fight the use of tax havens by multinational corporations in the courts could drive the EU or its member states to create new legislation, such as taxing revenues at the point of sale instead of on profits.

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The tax battle between Apple and the EU comes at a time of increased scrutiny of big tech companies by government authorities on both sides of the Atlantic. However, the nature of this case shows the complicated relationship between powerful companies and governments.

On one side is the EU. Their relationship and agenda are relatively straightforward. They aim to reign in powerful foreign companies and increase tax revenues.

For EU-member Ireland, things become a little more complicated. It is prepared to sacrifice billions of euros of tax revenues to ensure that Apple, along with other big tech companies, remain based in Ireland.

Meanwhile, the events in Europe have not escaped the notice of the US. On one hand, it wants to get Apple to repatriate its offshore holdings to increase US tax revenues at the EU’s expense. On the other hand, since the US gains from being home to so many of the world’s pre-eminent tech giants, it also wants to protect Apple and its peers to ensure the US remains the global tech powerhouse.

Michael Behr

Senior Staff Writer

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