Apple and Ireland say that they’ll contest a decision by the European Union today ordering the tech colossus to pay the country $14.5 billion in back taxes for what regulators call “illegal tax benefits” on its European profits.
Ireland “enabled it to pay substantially less tax than other businesses over many years,” says EU Commissioner Margrethe Vestager, who oversees competition policy. The “selective treatment allowed Apple to pay an effective corporate tax rate of 1% on its European profits in 2003 down to 0.005% in 2014.”
The tax assessment covers the taxes the EU figures Apple should have paid Ireland, plus interest, from 2003 to 2014.
Apple CEO Tim Cook says that the EU’s view “has no basis in fact or in law. 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 company is “confident” that the ruling will be reversed, he adds. If it stands, then it would “strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe.”
Apple assured shareholders that the decision won’t affect its near-term financial results although it will probably have to “place some amount of cash in an escrow account.” It had more than $18.2 billion in cash and $43.5 billion in short term marketable securities on its balance sheet at the end of June.
The company’s stock price fell less than 1% in early trading today.
The EU decision follows an investigation that began in mid 2014. It targeted Irish tax rulings that enabled Apple to benefit by allocating profits through a “head office” in the country even though it “had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter.”
Indeed, the office “did not have any employees or own premises.”
Cook counters that his company “received guidance from Irish tax authorities on how to comply correctly with Irish tax law…Apple follows the law and we pay all the taxes we owe.”
The EU says that the $14.5 billion tax payment it ordered could “be reduced if the US authorities were to require Apple to pay larger amounts of money to their US parent company for this period to finance research and development efforts.”
In 2013 Carl Levin, then a Democratic senator from Michigan, told Cook that Apple created business arrangements that ensured its “crown jewels” — economic rights to more than two-thirds of its worldwide profits — “are in three Irish companies that you control and don’t pay taxes.”
Cook responded that his company does “have a low tax rate outside the U.S. but this is for products that we sell outside the US, not within. There’s no shifting going on.”