Today, the European Commission has ordered Apple to pay up to €13 billion in tax payments. This is the first time the European Union has ordered a company to pay this much. According to Margrethe Vestager, the EU’s competition commissioner, who announced the figure at a European Commission press conference, “Member states cannot give tax benefits to selected companies — this is illegal under EU state aid rules, 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. In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1% on its European profits in 2003 down to 0.005 per cent in 2014.”
Apple has created subsidiaries in low-tax places such as Ireland, the Netherlands, Luxembourg and the British Virgin Islands to cut the taxes it pays around the world.
According to The New York Times, in the 1980s Apple was among the first tech companies to designate overseas salespeople in high-tax countries in a manner that allowed the company to sell on behalf of low-tax subsidiaries on other continents, sidestepping income taxes. In the late 1980s Apple was a pioneer of an accounting technique known as the “Double Irish with a Dutch sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean.
The investigation, launched in 2014, discovered that Apple routed 90% of its overseas profits through its two Irish subsidiaries, including Apple Sales International and Apple Operations Europe.
Apple, the world’s largest information technology company by revenue, the world’s largest technology company by total assets, and the world’s second-largest mobile phone manufacturer and also the Irish government have said they will fight against today’s ruling.
Michael Noonan, Ireland’s finance minister had 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.”
Apple has also indicated that the latest move by EU would affect how much it invests in Europe and how many people it employs in the region.
“Apple follows the law and pays all of the taxes we owe wherever we operate. We will appeal, and we are confident the decision will be overturned.”
Immediately the news broke, Apple’s share price fell by 1.6% in premarket trading.