EU's €13bn tax decision angers Ireland, US, and Apple

Two tax rulings handed in 1991 and 2007 allowed Apple to attribute profits made by two Irish-incorporated companies, Apple Sales International and Apple Operations Europe, to a "head office" that the commission said did not exist.

The head office declared by Apple had "no office, no premises, no real activity" but allowed the company to pay less than 1 percent of tax on its profits generated not only in Ireland but in all the EU single market.

"Apple set up their sales operations in Europe in such a way that customers were contractually buying products from Apple Sales International in Ireland rather than from the shops that physically sold the products to customers. In this way Apple recorded all sales, and the profits stemming from these sales, directly in Ireland," the commission explained.

The commission said that the scheme amounted to illegal state aid and that Apple should now pay taxes it was allowed to avoid.

It will be up to Irish authorities, according to a formula designed by the commission, to decide the exact amount Apple will have to pay. But the EU executive said it could reach up to €13 billion plus interest.

Irish appeal

Even though Irish finances would benefit from the commission's decision, the government in Dublin announced it would appeal to the European Court of Justice.

"I disagree profoundly with the commission's decision," Irish finance minister Michael Noonan said in a statement.

"Ireland position remains that the full amount of tax was paid in this case and no state aid was provided. Ireland did not give favourable tax treatment to Apple. Ireland does not do deals with tax payers," the statement said.

Dublin accused the commission of "undermining the international consensus [on the fight against tax avoidance], impending reform and creating uncertainty for business and investment in Europe."

Noonan said that appealing the decision was "necessary to defend the intergrity of our tax system, to privide tax certainty to business and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation".

Apple's reaction was equally indignant.

The commission's "unprecedented" claim that Apple benefited from special tax deals "has no basis in fact or in law," the firm said.

Rewriting history

"The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process," it said in a "message to the Apple community in Europe" posted on its website.

"Beyond the obvious targeting of Apple, the most profound and harmful effect of this ruling will be on investment and job creation in Europe," it added.

"Using the Commission’s theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed."

The US company also used the argument put forward by the Irish government and said that the commission was striking "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".

In Washington, a US treasury spokesman said that the "retroactive" decision was "disappointing" and would "undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the EU”.

Last week, the US treasury also said in a report that the commission's competition policies were harming international consensus and national sovereignty.

Depsite differences on some cases, EU competition commissioner Margrethe Vestager told journalists that she felt "very strongly" that the EU and the US shared the same approach on fair global taxation.

'A good precedent'

The decision was rather better received by politicians in Brussels.

Burkhard Balz, the economy spokesman for the center-right EPP group in the European Parliament said that the EU needed" "consistent, rigorous and bold enforcement of competition rules. That's what Vestager does."

Pervenche Beres, the economy spokeswoman for the center-left S&D group, said that the decision sent "a clear signal that those tax practices which create a race to the bottom between member states are no longer acceptable."

Fabio De Masi, from the left-wing GUE/NGL group, said the ruling "set a good precedent", but noted that the European Commission can "merely penalise the amount gained through illegal state aid, which then goes back to the very same member state that facilitated this tax fraud in the first place."

NGOs were both positive and critical.

The commission is "still addressing the symptoms but failing to treat the disease," said Tove Ryding from the European Network on Debt and Development (Eurodad).

"It's clear that unless the tax system is changed, the Commission will not be able to keep up with the tax-related acrobatics of multinational corporations," she said.

Elena Gaita, from Transparency International EU, welcomed Vestager’s efforts to tackle sweetheart deals but added that "these rulings have a limited deterrent effect."

"The Commission cannot investigate every dubious deal and corporations know this. We could avoid relying on the Commission and the resulting transatlantic tax squabbles by making companies’ financial information public,” she said.