BRUSSELS (AFP) - The European Union on Tuesday said US tech giant Apple must repay a record €13 billion (S$19.8 billion) in back taxes after ruling that a series of Irish sweetheart tax deals were illegal.
"The European Commission has concluded that Ireland granted undue tax benefits of up to €13 billion to Apple. This is illegal under EU state aid rules because it allowed Apple to pay substantially less tax than other businesses. Ireland must now recover the illegal aid," a Commission statement said.
In the latest in a series of rulings that has angered Washington, Brussels said the world’s most valuable company avoided tax bills on virtually all its profits in the bloc under its arrangements with Dublin.
Apple and the Irish government immediately said they would appeal against the European Commission ruling, while the US Treasury said it could undermine its economic partnership with the EU.
Ireland has been seeking to attract multinationals by offering extremely favourable tax conditions, known as sweetheart deals, but EU Competition Commissioner Margrethe Vestager said Apple’s broke EU laws on state aid.
“This decision sends a clear message. Member states cannot give unfair tax benefits to selected companies, no matter if European or foreign, large or small,” Vestager said. “This is not a penalty, this is unpaid taxes to be paid,” Vestager added.
The tax repayment order – by far the largest in EU history – follows a three-year inquiry into whether Dublin’s tax breaks for Silicon Valley titan Apple were against the law.
Apple has had a base at the southern city of Cork since 1980 and employs 5,000 people in Ireland, through which it routes its international sales, avoiding billions in corporation taxes.
But Vestager – who has launched a series of cases against US firms – said that Apple’s “so-called head office in Ireland only existed on paper. It had no employees, no premises and no real activities.”
Apple as a result paid an effective corporate tax rate of 0.005 per cent on its European profits in 2014 – equivalent to 50 euros for every million, Vestager added. Tensions have been growing between Washington and Brussels over a series of anti-trust investigations targeting companies such as Apple, Amazon, Starbucks and Fiat Chrysler.
Apple said “we will appeal and we are confident the decision will be overturned.”
“It will have a profound and harmful effect on investment and job creation in Europe,” the company added. Irish Finance Minister Michael Noonan said the decision “leaves me with no choice but to seek cabinet approval to appeal the decision before the European Courts”.
The Apple tax bill dwarfs the previous EU record for a state aid, the 1.3 billion euros received by the Nurburgring race track from German authorities. The US stepped up its rhetoric ahead of the decision, accusing the European Commission of unilateralism and overstepping its mandate.
On Tuesday (Aug 30), the US Treasury said the Apple ruling threatened the “spirit of economic partnership.”
“The Commission’s actions could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the EU,” a Treasury statement said.
The EU has made taxes a core issue since the LuxLeaks scandal in which it was revealed that European Commission President Jean-Claude Juncker’s native Luxembourg gave companies huge tax breaks while he was prime minister.
In October, Brussels ordered US coffee giant Starbucks and Italian automaker Fiat to each repay up to 30 million euros ($34 million) in back taxes to the Netherlands and Luxembourg respectively.
The US has acknowledged the problems around the issue of tax breaks but says the deals were made under international treaties and accepted tax practices. Vestager insisted that US companies were not being unfairly targeted.
“I feel very strongly we share the goal with the US of fair global taxation,” she said. Washington has also expressed concern about EU anti-trust cases targeting tech giant Google alleging that it has unfairly suppressed competition.