Tax loophole to cost Apple billions
Apple is facing a public relations disaster and a bill that could run to billions of euros because the European Commission is set to rule that it enjoyed an illegal tax deal in Ireland.
The California company will be ordered by Brussels to pay back the taxes it avoided through the use of loopholes to hide profits worth tens of billions of dollars with the connivance of Dublin.
The European Commission is expected to make the announcement shortly, placing the tax arrangements of multinational businesses under a fresh spotlight.
The ruling will also put Ireland on the defensive over its policy of luring international corporations with sweetheart tax deals that infuriate other European Union member states.
Analysts said that the sum owed by Apple could reach US$19 billion (NZ$26b) in the worst case scenario.
Although that is unlikely, a well-placed European Commission source said it would exceed 1 billion.
Apple, which has cash reserves of more than dollars £billion, will be able to handle the payment but will have trouble brushing aside the row over its tax dealings. The investigation has caused tension between Brussels and the US, which has called for the case to be dropped.
The European Commission signalled two years ago that it believed Apple’s Irish tax arrangements were illegal.
The company is understood to have used the so-called Double Irish technique to shelter its profits in tax havens despite having its European headquarters in Cork.
The commission believes that Dublin knew about this arrangement but allowed Apple to use it anyway in return for creating jobs in Ireland.
The company employs more than 5500 people in Cork and is likely to argue that its taxes reflect operations in procurement, distribution and sales.
Apple first relocated its overseas operations to Ireland in 1980 but the row stems from a deal approved by government officials in 1991 and 2007.
The European Commission is likely to say that Dublin’s attitude amounted to illegal state aid. It is expected to recommend the amount of tax that Ireland should recover but leave the final figure to the Irish government.
That will place Enda Kenny, the Irish prime minister, under pressure because voters subjected to years of austerity will want to recover as much as possible from Apple. However, Ireland’s economic boom is based largely on being attractive to business which means that Kenny will be unlikely to want to irritate Tim Cook, the Apple chief.
The Irish government and Apple are almost certain to appeal against the commission’s ruling. Ireland claims that Apple has always paid the standard corporation tax rate of 12.5 per cent and never enjoyed a sweetheart deal.
Irish authorities claim the Double Irish arrangement is being phased out and will try to argue that the commission’s decision relates to practices that no longer hold sway.
Brussels last year ordered Belgium to recover about 700 million in illegal tax breaks to at least 35 companies, including Anheuser-Busch InBev, the beer maker, and BP, the oil giant. Starbucks was instructed to pay
30 million in back taxes to the Dutch government.
Observers believe the commission will want to make an example of Apple amid growing exasperation over the way multinationals exploit loopholes to reduce their tax bills.