Apple Inc. (NASDAQ: AAPL) received illegal tax benefits from Ireland and the tech giant must pay as much as €13 billion of unpaid taxes in the country plus interest, according to the European Commission.
The Commission said Ireland violated the state aid rules of the European Union (EU) as it “allowed Apple to pay substantially less tax than other businesses.” It added, “Ireland must now recover the illegal aid.”
In a statement, Commissioner Margrethe Vestager, in charge of competition policy, said: “Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules.” According to her, Ireland’s selective treatment allowed Apple to pay an effective corporate tax rate of one percent (1%) on its profits in Europe in 2003 and down to 0.005% in 2014.
He added that the decision of the Commission has “serious, wide-reaching implications.” He said “The most profound and harmful effect of this ruling will be on investment and job creation in Europe. Every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed.”
The European Commission intensified its investigations against multinational companies accused of practicing tax avoidance schemes after the European Parliament called for a crackdown. The Parliament estimated that EU is losing revenues of around $160 billion to $190 billion every year due to corporate tax avoidance.
Penalty against Apple was the biggest
The penalty imposed on Apple was the largest since the European Commission started its initiative against corporate tax avoidance. The tech giant won’t be crippled by the fine since it has a massive cash stockpile of $232 billion as of last month. Most of its cash, around $214 billion are held overseas.
In October last year, the regulator found that Starbucks Corporation (NASDAQ: SBUX) and Fiat Finance and Trade (now operating as Fiat Chrysler Finance Europe S.A.) benefited from selective tax advantages in Netherlands and Luxembourg, respectively. Both companies were ordered to pay around €20 – €30 million each in unpaid taxes.
Ruling would affect investment and job creation in Europe
Apple CEO Tim Cook wrote in a letter published on the company’s website that they” received guidance from Irish authorities on how to comply correctly with Irish tax laws.” He emphasized that the tech giant is following the law and paying the taxes it owes.
He added that the decision of the Commission has “serious, wide-reaching implications.” He said. “The most profound and harmful effect of this ruling will be on investment and job creation in Europe. Every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed.”
The stock price of Apple closed $106 per share, down by 0.77% on Tuesday.