Apple has lodged an appeal against the European Commission (EC) decision that it needs to pay €13bn in tax to Ireland.
Back in August 2016, the EC ruled that Ireland granted Apple undue tax benefits of up to €13bn, which is illegal under EU state aid rules.
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Margrethe Vestager, European commissioner for competition policy said:
“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.”
This decision followed a three year investigation into two rulings issued by Ireland in favour of two Apple group companies: Apple Sales International (ASI) and Apple Operations Europe (AOE). It was found that the companies were not treated as Irish tax residents despite both being incorporated in Ireland because the country’s law at the time regarded them as US tax residents.
The Commission ordered Ireland to recover what it referred to as illegal aid, something the Apple’s chief executive Tim Cook described at the time as “total political crap”.
The company has officially responded with an appeal against the order, saying the decision “violated the principles of legal certainty and non-retroactivity, and violated legal certainty by ordering recovery under an unforeseeable interpretation of state aid law.”
In 14 pleas published in the Official Journal of the European Union, the Silicon Valley-based company has said the EC made fundamental errors as its profits from activities were attributable to the US, not Ireland, as its profit-driving activities are controlled and managed outside of Ireland meaning the profits of those activities are attributable to the US.
The legal action was first submitted in December 2016 and has now progressed to the European Court of Justice, which published the appeal.
It has said the EC made basic errors in its interpretation of both Irish tax law and the basics of profits made by Apple, insisting it owes Ireland nothing at all and is demanding the commission pay the costs of defending itself against the claim.
Apple has also accused the Commission of failing to “conduct a diligent and impartial investigation”, in part because the EC refused to reveal how it reached its ruling.
A spokesperson for the European Commission told Business Insider: “The Commission will defend its decision in court.”
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Tax expert at Pinsent Masons, Heather Self, said:
“One of Apple’s main arguments is that the profits from its activities were attributable to the US, and not Ireland, because the development and commercialisation of its intellectual property was controlled and managed in the US. This would not be such a surprising argument if it were not for the fact that Apple’s structure led to the profits being taxed nowhere.”
“Apple must be confident that its structure is robust as far as US tax is concerned, as paying US tax on all these profits would be significantly more costly than the €13bn the Commission says is due to Ireland.”
The court hearing between Apple and the EC is expected to take place later this year.
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