On Tuesday the European Commission ruled that Ireland gave undue tax benefits of up to €13 billion ($14.5 billion) to Cupertino, California based Apple Inc. since 1991 and now must recover the illegal state aid.
The European Commission has been conducting the state aid investigation since 2014 and concluded on Tuesday that Apple paid substantially less tax than other businesses in Ireland.
EU law forbids national tax authorities to grant special tax benefits to selected companies and considers it illegal state aid.
Apple CEO Tim Cook vehemently rejected the European Commission’s ruling on Tuesday and wrote a response letter in which he that denied Apple had received a special break on taxes.
“The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals” Cook wrote.
Cook explained that in Ireland and in every country where Apple operates, they follow the law and pay all the owed taxes.
Commissioner Margrethe Vestager, who led the European Commission investigative probe, described how Apple received special treatment from Ireland that enabled the company to pay less tax than other businesses in Ireland.
“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” Commissioner Vestager said.
The European Commission concluded that two tax rulings issued by Ireland to Apple have “substantially and artificially lowered” the tax paid by Apple in Ireland since 1991.
The Commission examined Apple’s tax structure of 2 Irish incorporated companies, Apple Sales International and Apple Operations Europe, that are fully-owned by the Apple group and were ultimately controlled by the U.S. parent Apple Inc.
Under a so-called ‘cost-sharing agreement’ (CSA) with Apple Inc. nearly all sales profits recorded by the two companies holding the rights to use Apple’s intellectual property to sell and manufacture Apple products outside North and South America were internally attributed to a “head office”.
The Commission’s assessment showed that these “head offices” existed only on paper and could not have generated such profits.
As a result of the two tax rulings, Apple only paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014 on the profits of Apple Sales International.
The Commission determined that from the same two tax rulings from 1991 and 2007, Apple Operations Europe also benefitted from a similar tax arrangement over the same period of time.
Apple CEO Tim Cook emphasized in his letter that Apple contributes to local economies around the world and has become the largest taxpayer in Ireland, the largest taxpayer in the United States, and the largest taxpayer in the world.
Cook said that the new ruling from the European Commission in Brussels undermines the sovereignty of EU member states over tax policy and weakens the certainty of law across Europe.
“The Commission’s move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe” Cook wrote.
Cook added that Apple will appeal the ruling and said he believes the facts and the established legal principles upon which the EU was founded will ultimately prevail.