Ap­ple faces $14.5B tax bill

The Daily Herald - - HERALD BUSINESS JOURNAL - By Dara Doyle and Stephanie Bodoni

Ap­ple Inc. was or­dered to pay as much as $14.5 bil­lion, or 13 bil­lion eu­ros, plus in­ter­est af­ter the Euro­pean Com­mis­sion said Ire­land il­le­gally slashed the iPhone maker’s tax bill, in a record crack­down on fis­cal loop­holes that also risks in­flam­ing ten­sions with the U.S.

The world’s rich­est com­pany ben­e­fited from se­lec­tive tax treat­ment that gave it an un­fair ad­van­tage over other busi­nesses, the Euro­pean Union reg­u­la­tor said Tues­day. It’s the largest tax penalty in a three-year cam­paign against cor­po­rate tax avoid­ance. Ap­ple and Ire­land both vowed to fight the de­ci­sion in the EU courts.

Ire­land al­lowed Ap­ple to pay an ef­fec­tive cor­po­rate tax rate of 1 per­cent on its Euro­pean prof­its in 2003 down to 0.005 per­cent in 2014, ac­cord­ing to EU Com­pe­ti­tion Com­mis­sioner Mar­grethe Vestager.

“If my ef­fec­tive tax rate would be 0.05 per­cent fall­ing to 0.005 per­cent — I would have felt that maybe I should have a sec­ond look at my tax bill,” she told re­porters.

The U.S. Trea­sury De­part­ment, which has pushed back hard against the EU state-aid probes, said the com­mis­sion’s ac­tions “could threaten to un­der­mine for­eign in­vest­ment, the busi­ness cli­mate in Europe, and the im­por­tant

spirit of eco­nomic part­ner­ship be­tween the U.S. and the EU.”

White House Press Sec­re­tary Josh Earnest said that Ap­ple ex­ec­u­tives have shared con­cerns about the com­pany’s tax treat­ment over­seas with of­fi­cials in Pres­i­dent Barack Obama’s ad­min­is­tra­tion.

Ad­min­is­tra­tion of­fi­cials are broadly con­cerned that what Earnest called the EU’s “uni­lat­eral ap­proach” doesn’t un­der­mine co­or­di­nated ef­forts to pre­vent an “ero­sion of the tax base.” Also, he said, they want to en­sure that any ac­tions are fair to U.S. tax­pay­ers and U.S. busi­nesses.

Ap­ple, which em­ploys about 6,000 peo­ple in Ire­land, was one of the first com­pa­nies caught up in the EU’s back­lash against cor­po­rate tax-avoid­ance. The EU, like other global reg­u­la­tors, has tar­geted firms that side­step taxes by mov­ing around prof­its and costs to wher­ever they are taxed most ad­van­ta­geously — ex­ploit­ing loop­holes or spe­cial deals granted by friendly gov­ern­ments.

“The most pro­found and harm­ful ef­fect of this rul­ing will be on in­vest­ment and job cre­ation in Europe,” Ap­ple Chief Ex­ec­u­tive Of­fi­cer Tim Cook said in a let­ter pub­lished on the com­pany’s web­site. “Ev­ery com­pany in Ire­land and across Europe is sud­denly at risk of be­ing sub­jected to taxes un­der laws that never ex­isted,” he said.

While the 13 bil­lioneuro fig­ure rep­re­sents the EU’s es­ti­mate of how much Ire­land should claw back from Ap­ple, the com­mis­sion said the ac­tual fig­ure could be less if other na­tions used the in­for­ma­tion gleaned by the EU to claim a share of taxes.

Ir­ish Fi­nance Min­is­ter Michael Noo­nan told Bloomberg TV that Vestager was ad­vis­ing coun­tries to “in ef­fect, form a queue and look for that tax.”

The com­mis­sion said the amount could be re­duced if the U.S. re­quired Ap­ple to pay larger amounts of money to its Amer­i­can par­ent com­pany to fi­nance re­search and devel­op­ment ef­forts.

Ul­ti­mately, the EU courts also have the power to cut or over­turn re­pay­ment or­ders if they find fault with the com­mis­sion method­ol­ogy dur­ing the ap­peals.

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