The European Commission (EC) has taken a bite out of Apple by ordering it to pay the Irish government up to €13bn (£11bn) in back taxes, after ruling the tech company’s tax arrangements with the country were illegal.
The ruling is a major blow to multi-national corporations who avoid tax on their incomes across Europe through the use of “sweetheart” deals offered by individual EU states.
The commission said the deals between Ireland’s tax authorities and Apple, which took place from 1991 and 2015, were the equivalent of illegal state aid and stated that Apple’s “head office” in Ireland was a façade that could not have generated the profits attributed to it.
The arrangements, which were changed last year, allowed Apple to avoid tax throughout the EU single market because the company recorded almost of all its profits as having been made in Ireland. Apple’s effective tax rate in Ireland in 2003 was 1 percent in 2003, dropping to 0.005 percent in 2014, the commission noted.
EC competition commissioner, Margrethe Vestager said: “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.”
The Irish government has said it will appeal against the ruling, which came after a three year EC investigation, because it will damage the country’s standing as a low tax destination for foreign businesses. Previously Apple’s chief executive Tim Cook described the EC’s investigation as “political crap” and vowed to appeal any attempt to make the company pay back taxes.
Despite Apple’s resistance it would have no problem paying €13bn, which amounts to the annual cost of Ireland’s health service budget, because the company has stockpiled more than $230bn in securities and cash. Campaigners in Ireland are demanding that the money be spent on a social housing drive.
City University professor and tax campaigner Richard Murphy said the ruling would also benefit other EU states.
He said, “This is a great day for the sovereignty of the EU’s nations when it comes to tax. They will now be able to choose their own tax policies knowing another state should not be consciously undermining them when doing so.
“This might be the beginning of the end for tax competition in Europe, or tax warfare as it is better described. Today might herald the creation of what Europe has always wanted, which is a level playing field on which all businesses compete.”
Unite assistant general secretary Steve Turner warned that the British government must be part of Europe’s stand against tax avoidance regardless of its position within the EU.
“The key is that in future we have a progressive taxation system where wealth and income are taxed fairly and large multinationals pay their fair share – and are not able to use loopholes to scandalously avoid their taxes,” Turner said.
“Billions are lost to our economy because of the practices of companies determined not to properly contribute to the public purse that provides the infrastructure and support that enable their businesses to thrive. Taking action against tax avoiders will be crucial during the Brexit negotiations and for the UK government afterwards.”