Why the EC Ruled Against Apple

The European Commission ordered Ireland to recover up to 13 billion euros ($14.5 billion) from the tech giant over what it called “illegal tax benefits.”

Margrethe Vestager, the European Union competition commissioner, speaks
Margrethe Vestager, the European Union's competition commissioner  (Virginia Mayo / AP)

NEWS BRIEF Ireland’s tax incentives to Apple are illegal and Dublin must recover up to 13 billion euros ($14.5 billion) from the American tech giant, the European Commission ruled Tuesday.

Here’s more from Margrethe Vestager, the commissioner in charge of competition policy:

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. 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, which stems from an investigation launched in 2014, concluded that the two tax incentives issued by Ireland to Apple substantially and artificially lowered the tech giant’s taxes in Ireland since 1991.

Both Apple and the Irish government criticized the ruling, and said they would appeal.

Apple said:

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. The Commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money. It will have a profound and harmful effect on investment and job creation in Europe. Apple follows the law and pays all of the taxes we owe wherever we operate. We will appeal and we are confident the decision will be overturned.

Michael Noonan, the Irish finance minister, said: “The decision leaves me with no choice but to seek cabinet approval to appeal. This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation.”

Tuesday’s ruling is the largest penalty handed down in the EC’s investigation into what it regards as undue financial deals granted by some EU nations. As we reported last October, the commission also found tax advantages that Netherlands gave Starbucks and Luxembourg gave Fiat Chrysler’s financial unit were illegal.

The decision could provoke a dispute with the U.S., which has accused Brussels of unfairly targeting American companies over taxation.

At issue is corporate tax avoidance. Large transnational firms, such as Apple, move their corporate headquarters to those places where they are taxed most advantageously. Such a move offers the companies cost savings, but it has prompted a massive backlash within the EU, resulting in the EC’s investigation into whether countries such as Ireland have given companies an undue fiscal advantage.

Here’s more from Bloomberg:

Low corporate taxes are the cornerstone of Irish economic policy, with the 12.5 percent rate the lowest in Western Europe and a draw for Alphabet Inc.’s Google and Facebook Inc. to Dublin. More than 700 U.S. companies have units there, which employ 140,000 people, according to the American Chamber of Commerce in Ireland.

The appeals process can take years, and, until a final ruling, the money Apple has been ordered to pay can be held in escrow.