Apple, Ireland Attack $14 Billion European Tax Bill Ahead of of Formal Appeal

Tim Cook during an Apple Event
David Paul Morris/Bloomberg via Getty Images

Tim Cook, chief executive officer of Apple Inc., speaks during an event in San Francisco on, Sept. 7, 2016.

Both Apple and Ireland, the nation it has been ordered to reconcile a record $14 billion tax bill with, are appealing a European Commission ruling from August that cast the American company as a tax dodger. Apple outlined its legal challenge in a new interview with Reuters, saying the EU singled out the company because it would be seen as a flashy "get" for regulators.

"Apple is not an outlier in any sense that matters to the law. Apple is a convenient target because it generates lots of headlines," said General Counsel Bruce Sewell, who added that Apple will argue that the commission basically ignored tax experts produced by Irish authorities. "The Commission not only didn't attack that -- didn't argue with it, as far as we know -- they probably didn't even read it."

On Monday, Ireland's Department of Finance also attacked the ruling, accusing the EU of meddling in their business affairs.

The Apple and Irish countermoves come nearly four months after EU competition authorities hit Apple with the back-tax bill based on its longtime reporting of European-wide profits through Ireland, which charges the American company only for sales on its own territory at Europe-low rates that in turn have been greatly reduced by the use of shell companies at home and abroad.

In its formal legal summary, Ireland authorities declared that is the whole point of the nation's sales pitch to foreign investors -- and asserts it is perfectly legal to levy far less tax on profits than imposed by competitors. It accuses EU competition authorities of unfairness, exceeding their competence and authority, and seeking to breach Ireland's sovereignty in national tax affairs.

The ruling unveiled Aug. 30 by EU Competition Commissioner Margrethe Vestager called on Apple to pay Ireland the 13 billion euros ($14 billion) for gross underpayment of tax on profits across the European bloc from 2003 to 2014. Her report concluded that Cupertino, California-based Apple used two shell companies incorporated in Ireland to permit Apple to report its Europe-wide profits at effective rates well under 1 percent.

The centerpiece of Ireland's argument is that Vestager should have confined herself to policing illegal state aid that gives an unfair advantage to a particular company, whereas the EU has launched an assault on a policy that Ireland has offered to all foreign companies locating on its soil.

The benefits are obvious in Ireland, which has the fastest-growing economy in Europe driven by the exports of about 1,000 multinationals that employ 5 percent of the workforce and generate nearly a quarter of economic output. Apple today is the biggest private employer in the Irish Republic's second-largest city, Cork, with a workforce exceeding 5,500. Economists estimate Apple's Cork operation pumps around 16 billion euros ($17 billion) annually in salaries, tax and investment into the Irish economy.

Despite those employment numbers, Apple actually argues that Vestager and the EU have placed too much overall importance in the Cork headquarters. "(Vestager) is arguing that the base on which we should pay taxes in Ireland is essentially all the profits we generate outside the United States ... in a place that doesn't do any engineering, doesn't generate any intellectual property for us," said Chief Financial Officer Luca Maestri, calling it an "absurd theory."

Following the ruling in August, Apple chief Tim Cook called accusations that it paid a mere 0.005pc tax in Ireland in 2014 "political crap," instead saying he believed the true figure to be $400 million, making them the "highest taxpayer in Ireland that year."

Apple argues that the difference between the two tax systems -- the U.S. takes a global approach while the rest of the world is more territorial -- created the loophole that the EU was able to exploit. Sewell said the company hopes President-elect Donald Trump will enact tax reforms when he takes office next year.


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