Apple holds Europe to ransom: Tech giant threatens to cut jobs in EU after Brussels orders it to pay back £11BILLION in tax over ‘illegal’ sweetheart deal with Irish government
- £11bn ($14.5bn) penalty issued is 40 times higher than previous EU record
- Ireland will be asked to claw back billions but will refuse cash and appeal
- Apple paid as little as 0.005% tax a year on its profits outside the US
- In 2011 it made $22bn profits but just $55m was deemed taxable in Ireland
- Tech giant will appeal and say EU figures are ‘completely made-up’
- Google and Amazon could be next with EU rulings due in the next year
- US Treasury has warned EU not to pursue American companies over tax
Apple has already threatened to cut jobs in Europe after Brussels ordered it to repay £11billion ($14.5billion) – the biggest tax bill ever imposed outside the US.
The European Commission’s three-year investigation into Apple’s sweetheart deal with Ireland has found it amounted to illegal state aid.
Its damning report published today says the tech giant paid as little as 0.005 per cent tax by funnelling its non-US profits through its Irish headquarters with no staff or premises then on to its $178billion (£120bn) offshore fund.
The giant tax bill, which could reach £16billion ($21 billion) because of interest, will not be difficult for the company to pay because it made $53.4billion (£35billion) last year – the biggest profit in corporate history.
But Apple will appeal saying the Commission’s figures are ‘completely made-up’ and its CEO Tim Cook, who previously called the probe ‘political c**p’, is threatening EU job losses if they don’t back down.
The US Treasury has also warned Brussels not to pursue American companies over tax avoidance – but McDonald’s, Google and Amazon could be next.
Ireland has said it doesn’t want Apple’s money even though it is equivalent to £2,400 for each of its 4.5million residents and would cover the costs of its national health service for a year.
The Commission’s landmark report says that between 2003 and 2014 Apple paid a rock bottom Irish tax rate on most of its profits outside the US before sending it to a tax haven where it paid no tax at all. It has more than £120billion stashed in offshore accounts.
EU Competition Commissioner Margrethe Vestager said: ‘Member states cannot give tax benefits to selected companies-this is illegal under EU state aid rules.’
The EU intervention is going to cause a huge row between Brussels and Washington over tax powers.
The EC says Apple’s Irish arrangements allowed them to pay just 500 euros in tax on every one million euros they made.
In 2011 Apple’s profits outside America were $22billion but Ireland agreed that only 50 million euros ($55million) was considered taxable.
HOW APPLE’S $14BN TAX BILL WILL BARELY MAKE A DENT
Annual revenue: $650bn (£428.5bn)
Annual profits: $53.4bn (£35bn) – around $1600 profit every second
Offshore cash fund: $53.4bn (£35bn)
Sales: 90m iPhones (34,000 every hour), 40m iPads, 16m MACs and 5m iWatches
Employees: 304,000 current U.S. jobs — 70,000 employees around the world including 22,000 in Europe. It also has 257,000 jobs at ‘other companies’ that support its products.
But Apple executives have now accused the Commission of doing the sums wrong in calculating the jaw-dropping £11billion ($14.5m) bill for unpaid tax.
It said in a statement: ‘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.
‘Apple warned of the ramifications for future investment in Europe, where it employs 22,000 people.
‘The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and up-end the international tax system in the process.
‘It will have a profound and harmful effect on investment and job creation in Europe’
The company’s chief financial officer, Luca Maestri, claimed the tech giant paid 400 million US dollars in tax in 2014 in Ireland.
He claimed Competition Commissioner Margrethe Vestager’s assessment that Apple paid just 50 euro in tax for every one million euro it made that year was nonsense.
He said: ‘It is a completely made-up number. We really believe that the impact of this decision will be devastating for the European economy.’
CEO Tim Cook posted a lengthy message on apple.com, warning about devastating ramifications for the sovereignty of European countries in light of the competition chief’s hard line.
He said: In Ireland and in every country where we operate, Apple follows the law and we pay all the taxes we owe.’
Mr Cook accused Brussels of taking unprecedented action, with serious and wide-reaching complications.
He said: ‘Beyond the obvious targeting of Apple, the most profound and harmful effect of this ruling will be on investment and job creation in Europe’.
‘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.’
Peter Vale, a Dublin-based corporate tax expert for accountancy firm Grant Thornton, calculates that Tuesday’s judgment if upheld on appeal will cost Apple 19 billion euros ($21 billion) because the order includes interest for unpaid tax going back more than a decade.
APPLE CUTS IN EUROPE COULD BE DEVASTATING
More than 22,000 people in Europe are employed directly by Apple and around 1.4million more rely on them for money, the tech giant claims.
Parts for its phones, tablets, computers and watches are put together with the help of 4,700 suppliers based in 23 countries.
More than 6,500 people in Britain are employed directly by Apple – the highest number in the EU – followed by 5,500 each in Germany and Ireland.
In Europe there are more than 100 official Apple stores employing an average of 100 people each and there are 600 smaller Apple Premium Resellers across Europe that offer the complete range of Apple products.
Away from direct sales Apple also has more than one million registered app developers making money through the App Store.
Vale says the EU order will require the Irish tax collection agency to issue a demand soon for payment, and any money handed over by Apple would be placed in a hands-off escrow account pending years of litigation before the European Court of Justice in Luxembourg.
Vale says: ‘While the tax to be collected is hugely significant, this is unlikely to be made available for public expenditure purposes pending the appeal result.’
Apple insists it is committed to Ireland, where employee numbers have grown from 60 in October 1980 and through the lean years of the early 1990s to almost 6,000 now.
Apple also dismissed the prospect of a six billion euro interest bill being piled on top of the unpaid tax.
The company went further in its defence, accusing the Commissioner of misunderstanding its corporate structure, describing the entire operation at its original home of Cupertino, California as its crown jewels and head office.
Brian Sewell, Apple’s general counsel, slammed Commissioner Vestager’s ruling on the 1991 tax advice as ‘astounding, stunning and very troubling’.
Today’s huge penalty, imposed after a three-year investigation into the firm’s tax affairs, is 40 times bigger than any tax demand issued by the European Commission.
Ireland will today be ordered to claw back billions in backdated tax – but extraordinarily the government will appeal the decision and reject the money.
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.
Ireland’s Finance Minister Michael Noonan said he profoundly disagreed with the verdict and denied doing ‘deals’ with taxpayers.
‘Our tax system is founded on the strict application of the law … without exception,’ he said.
He added that it was necessary to fight the verdict in the courts ‘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’.
‘It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment,’ he said.
The case is one of the most high-profile in the fight to redraw boundaries on aggressive tax avoidance, an issue which has put the EU at odds with the US government.
Ms Vestager found two tax rulings issued by Ireland to Apple which she said substantially and artificially lowered the tax paid by the multinational.
She said the arrangements to establish the taxable profits for two Irish incorporated companies of the Apple group – Apple Sales International and Apple Operations Europe – did not reflect economic reality.
APPLE’S ROCK BOTTOM TAX BILL: HOW DOES IT DO IT?
Apple’s tax bill is so low thanks to the movement of profits to subsidiaries in Ireland and a ‘head office’ within Apple Sales International which was not based in any country, had no employees or premises and only had occasional board meetings.
The European Commission probe revealed only a small percentage of Apple Sales International’s profits were taxed in Ireland and the rest was not taxed anywhere.
The commissioner highlighted 2011, when Apple Sales International recorded profits of 22 billion US dollars.
Under the tax arrangement it had in Ireland, only about 50 million euro was considered taxable, leaving 15.95 billion euro of profits untaxed, the inquiry found.
That year, Apple Sales International paid less than 10 million euro of corporate tax in Ireland – an effective tax rate of about 0.05% despite the headline rate being 12.5%.
The Commission said that, in subsequent years, Apple Sales International’s recorded profits continued to increase but the profits considered taxable in Ireland under the terms of the tax ruling did not.
The arrangement was terminated last year when Apple Sales International and Apple Operations Europe changed their structures, the inquiry found.
The companies hold the rights to use Apple’s intellectual property to sell and manufacture its products outside North and South America and make yearly payments to Apple in the US for research and development.
The Commission found these expenses were deducted from the profits recorded by Apple Sales International and Apple Operations Europe in Ireland each year.
It also revealed that Apple set up its sales operations in Europe in such a way that customers were buying products from Apple Sales International in Ireland rather than from the shops that physically sold them. This way Apple recorded all sales and associated profits in Ireland.
The commissioner said almost all sales profits recorded by the two companies were internally attributed to a ‘head office’ which only existed on paper and could not have generated such profits. Her inquiry found the profits were not subject to tax anywhere.
Ms Vestager’s ruling also comes just a week before Apple’s biggest product launch of the year, with the iPhone 7 and a new version of the Apple Watch to be unveiled in San Francisco.
Her office’s investigations have also targeted aggressive tax planning by Starbucks and Fiat, both of which are appealing against rulings ordering them to pay back taxes to the Netherlands and Luxembourg.
Ms Vestager dismissed threatened court challenges from Apple and the Irish Government, saying she had a ‘very concrete case’.
The Commission said in a statement: ‘Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to 13 billion euros ($14.5 billion), plus interest.’
The EC said the tax bill could be reduced if other countries also pursued more tax from Apple themselves.
Apple has been probed for the way it channels profits made across Europe through a subsidiary company in Ireland. It is claimed the firm was able to pay 1 per cent tax on its European sales for two years, instead of the 12.5 per cent rate on profits that is typically used in Ireland.
The lower tax bills came following two tax assessments by authorities in Ireland.
This, the Commission has asserted, effectively allowed Apple to receive state aid because it was benefiting from a financial advantage other firms were not able to receive.
Fianna Fáil finance spokesman Michael McGrath said yesterday that his party would read the ruling before making a decision but he added that Apple will soon employ close to 6,000 people in Cork so the company was not ‘a brass-plate operation where monies are coming into Ireland through some intricate funding system’.
He said: ‘This is a real operation, but the question is have they been treated fairly and consistently with other companies in relation to Ireland’s corporation tax. We have been reassured so far that they have, so that remains our position and we will read the report very carefully and the Government response.’ But Sinn Féin said an appeal would be ‘farcical’.
MEP Matt Carthy said: ‘The majority of Irish citizens are looking on with disgust as Fine Gael and Fianna Fáil go to such great lengths to facilitate a multinational corporation to avoid paying its fair share of tax.
IRELAND WOULD GET BACK IN BLACK IF GOVERNMENT ACCEPTED APPLE’S MONEY
The record tax bill given to Apple is so huge that it would put Ireland back in the black for the first time in a decade, it was revealed today.
Should Apple eventually pay the Irish the £11billion bill ordered by European chiefs, it would represent about £2,400 per man, woman and child there.
Ireland, which is among the least populous nations in the EU with a population of 4.6million, would also easily see its 2016 deficit wiped out with the money.
Apple has had a base in Ireland since 1980, long before it became the global brand it is today thanks to its iPhones, iPads and App Store.
It employs around 5,500 people in the country, with its biggest operations in Cork.
‘Government and Fianna Fáil representatives have lined up in recent days to assure Apple and other multinationals that they will immediately challenge any ruling against the Appletax deal in the European Court of Justice.
‘They refuse to even wait to read the content of the ruling before announcing such assurances.’ In a similar ruling against the Netherlands, the commission previously required the coffee chain Starbucks to pay up to €30million in back taxes.
Eoghan Murphy, junior finance minister in Ireland, said: ‘We don’t believe we gave any state aid to Apple. It’s in the national interest that we defend our international reputation in this regard.’
Investment bank JP Morgan has previously estimated the total cost for Apple could be as much as £15billion.
Barrister Jolyon Maugham QC of Devereux Chambers said: ‘This decision jeopardises Ireland’s business model as a country that attracts businesses to be based there on a basis of lower tax. This is an example of political activism by the commissioner. The commissioner is trying to make sure the single market function is maintained and member states do not win business at the cost of others’ tax base.
‘There is a technical point where tax incentives stop and state aid begins.’
Apple employs about 5,500 people in Ireland, and has argued that its tax bill reflects its operations of procurement, distribution and sales.
Ireland and Apple can now appeal these tax bills. Both have denied any wrongdoing.
The commission investigation relates to two rulings given to Apple in 1991 and 2007.
Who’s next in the firing line? Google, Amazon and Starbucks are among the firms facing more scrutiny after the multi-billion pound Apple tax ruling
Apple is the latest major multinational to find itself in the cross-hairs of the EU commission.
And the massive £11billion tax bill levied on the tech giant could set the scene for a titanic battle.
The Commission’s three-year investigation into Apple’s sweetheart deal with Ireland found it amounted to illegal state aid.
A damning report revealed the firm paid as little as 0.005 per cent tax by funnelling its non-US profits through a ‘so-called headquarters’ in Ireland with no staff or premises.
The EU’s giant tax bill will not be difficult for the company to pay because it has amassed a huge $178 billion (£120bn) offshore cash fund and last year made $53.4billion (£35billion) – the biggest profit in corporate history.
But Apple will appeal and the tech giant’s CEO Tim Cook, who previously called the probe ‘political c**p’, is threatening EU job losses if they don’t back down. The Irish government has also attacked the ruling as ‘bizarre’.
The US Treasury has warned the EU not to pursue American companies over tax avoidance saying there is a ‘disturbing’ pattern of singling out US companies.
Google, Amazon, Facebook, Yahoo, Microsoft, Twitter and eBay also have corporate facilities in Ireland – where attractions include minimal regulation and low corporate tax rates – which could come under renewed scrutiny.
The EU commission has already ruled that a tax deal for Starbucks in the Netherlands was unlawful. The company has been fined around 30million euros, although again it is appealing.
Meanwhile, competition regulators are probing deals awarded by Luxembourg to both McDonald’s and Amazon.
German economy minister Sigmar Gabriel was today said to have suggested Google’s tax structures should also be examined closely.
Brexit Britain could become home to giant global firms which fear huge EU tax demands after Apple ruling
New deal? Experts believe that a Britain free from Brussels could be able to attract companies such as Apple, run by Tim Cook, pictured, with its own tax deals
Post-Brexit Britain could benefit from a landmark EU ruling that has seen Apple slapped with a £11billion tax bill.
Experts believe that a British economy free from Brussels could be able to attract companies such as Apple with its own tax deals.
Today Apple has already threatened to cut EU jobs and investment after they were told their sweetheart deal with Ireland amounted to illegal state aid.
Theresa May’s official spokesman has already said that the UK’s ‘Corporation Tax is one of the lowest in the world’.
Neil Wilson, markets analyst at ETX Capital, said: ‘The European Commission seems to be treading very close to interfering with the tax rules of member states, effectively telling Ireland how much tax it ought to levy. It’s also increasingly becoming a supra-national tax judge.
‘Britain could benefit. If Ireland cannot offer sweetheart deals within the EU, the City of London can perhaps offer something more appealing outside the bloc.’
Asked whether the Prime Minister believed the Commission decision amounted to good news for the UK post-Brexit, as it would make EU states less able to use competitive tax policies to attract inward investment, a Downing Street spokesman said: ‘In terms of offering a low-tax environment, the UK already does that.
‘Our Corporation Tax is one of the lowest in the world. We are committed to making the trading condition for companies in Britain as positive for them as it can be as long as it’s positive for the country as a whole.’
Asked whether the Government would like to see Apple relocate in the UK post-Brexit, a No 10 spokesman added: ‘The narrative from the Government has been well set out. Britain is open for business, we would welcome any company wishing to invest in Britain.’
He stressed that all companies registered in the UK are expected to ‘pay the tax they owe’.
Competition Commissioner Margrethe Vestager said the maker of iPads and iPhones paid just 1% tax on its European profits in 2003 and 0.005% in 2014. The Brussels watchdog found the arrangements dating back to the early 1990s were illegal under state aid rules and gave Apple favourable treatment over other businesses.
However, Apple boss Tim Cook said the Commission’s decision would ‘strike a devastating blow to the sovereignty of EU member states over their own tax matters’.
The company’s chief financial officer, Luca Maestri, said the decision would be ‘devastating’ for the European economy.
The tax affairs of a string of other firms, including Amazon, Google and McDonald’s, are also set to come under the EU microscope in the coming months.
Lewis Crofts, global chief correspondent at antitrust trade publication Mlex, added: ‘A post-Brexit Britain could be able to attract companies such as Apple with tax deals like the Irish one, and the European Commission would have no say.
‘But only in a ‘hard-Brexit’ scenario. A half-way solution – similar to Norway’s or Switzerland’s – could see the UK subject to Brussels oversight without being at the table when the rules or decision are agreed.’
Mr Cook said that Apple is ‘committed to Ireland and we plan to continue investing there’.
APPLE’S £11BILLION TAX BILL IS THE BIGGEST IN EU HISTORY – AND MCDONALDS AND AMAZON COULD NOW BE NEXT
What sort of arrangement did Apple have with Irish authorities?
The EU Commission’s investigation was launched in 2014 under the suspicion that Irish authorities were purposefully miscalculating and ultimately underestimating Apple’s taxable profit on products like iPhone and iPads.
The multinational corporation is said to have secured a tax advantage not available to other companies, which ultimately amounted to state aid and breached EU antitrust law. Both Irish authorities and Apple have repeatedly denied breaching these rules.
Why does the EU’s ruling on Apple matter?
The sheer size of the case is drawing attention. In October, the EU Commission ordered Starbucks and Fiat to pay 20 to 30 million euro for benefiting from so-called sweetheart tax deals in the Netherlands and Luxembourg.
That is compared with the latest ruling, which is calling on Ireland to recoup 13 billion euro (£11 billion) in unpaid taxes from Apple.
The case has also irked the US Treasury, which earlier this month published a paper accusing EU authorities of unfairly targeting US companies in antitrust probes.
Lewis Crofts, global chief correspondent at antitrust trade publication Mlex, explained that the US is worried that Apple’s cash won’t make it back to the US. ‘They say ‘it’s our money, you have no right to take it’. That’s the big fight.’
Will Apple pay?
Apple is expected to appeal against the ruling in European General Courts and take it to the Court of Justice if the first appeal fails.
While the ruling would ultimately benefit Irish government coffers, Mr Crofts says Ireland will also appeal against the EU Commission’s decision.
The irony is that there will be domestic pressure to accept this money, but what Ireland knows is that, in this instance, the decision makes it much less attractive to invest in,’ Mr Crofts said.
Which companies will be targeted next?
A case this size is unlikely to come up again, but there are other US companies in the firing line.
EU authorities are currently investigating Amazon and McDonald’s for similar tax deals it deems illegal. Those rulings could be doled out in the next six to 12 months.