The European Commission (EC) issued a significant ruling against Apple on 30 August that could have far-reaching implications.
“The European Commission has concluded that Ireland granted undue tax benefits of up to €13 billion to Apple,” reads a statement from the EC. “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.”
The judgment is a result of a three-year EC investigation into how Apple benefits from a pre-EU 1991 tax ruling (renewed in 2007) which allegedly allowed them selective treatment.
“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,” said Commissioner Margrethe Vestager, in charge of competition policy. “In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014.”
The ruling comes just months after news broke that Germany and France are pushing plans to introduce a minimum corporation tax rate across the continent, which would be designed to align corporate tax law across the EU.
Apple and Ireland to challenge the ruling
In an open letter to Apple’s European customers, Apple CEO Tim Cook wrote:
“The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals. We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid.”
Ireland says that it “profoundly disagrees with the ruling” and will appeal the decision in the EU General Court, which EU officials admit has a strong chance of success.
Impact on Ireland’s status as tech hub?
Ireland benefits from US corporate investment, much of it ICT investment. Some 700 US companies currently operate in Ireland, employing an estimated 130,000 people. US direct foreign investment amounted to USD277 billion over the past two decades.
Dublin’s official tourism site has mapped the city’s tech scene to show off the amount of tech giants and startups that have made the Irish capital their home.
Yet, today’s ruling may act as a warning example for other tech giants including Twitter, Facebook, Google and Airbnb who also house their European Headquarters in or near Dublin.
Apple alone supports an estimated 18,000 jobs across the country, including more than 5,000 direct Apple employees – soon adding a further 1,000 employees to their Cork plant – and recently announced the construction of a giant EUR850m data centre in Athenry, Co Galway.
Impact across Europe
In a statement to TechWeekEurope, Apple said that the decision “will have a profound and harmful effect on investment and job creation in Europe.”
The EC’s decision will not only overshadow Apple’s latest product launch next week, but may have repercussions for how alleged tax avoidance is policed in the EU, which could impact tech companies across the continent.
For its part, the United States warned in a white paper last week that additional Commission investigations against US firms could have a “growing chilling effect on US-EU cross-border investment.”