The European Commission has found that Apple was illegally given tax benefits amounting to some €13bn by the Irish tax authorities, which must now be recovered.
During a three-year investigation, The Commission found that selective treatment allowed Apple to pay an effective corporate tax rate of one per cent on its European profits in 2003. In other words, for every €1m in profit made from sales across Europe it paid €10,000 in tax.
This dropped even further to a rate of 0.005 per cent in 2014; or just €50 for every €1m in profit.
Apple was able to do so thanks to a tax agreement established in 1991.
The crux of the issue lies in the fact that Apple was given the green light to set up a ‘head office’ (which had no offices or employees) in Ireland through which “almost all sales profits” from Apple Sales International and Apple Operations were recorded.
The profits allocated to the ‘head office’ were not subject to tax in any country under specific provisions of the Irish tax law.
This selective tax treatment of Apple in Ireland is illegal under EU state aid rules.
While Apple is no longer able to take advantage from this tax benefit, the EU has concluded that Ireland must determine the exact amount the company owes and how it will pay it back.
EU regulators have also said that Apple’s tax bill could be cut if other countries, including the US, order the company to pay more.
However, it is expected that both Apple and Ireland will appeal the decision, with the latter concerned with how it will impact its strategy to attract foreign companies to set up in the country.
During a press conference in Brussels today, Commissioner Margrethe Vestager rebuffed any suggestion that the ruling would detract foreign investment into Europe.
“This is not a penalty. This is unpaid taxes to be paid. The substantial reasons to invest in Europe are there and unquestioned and we’re working on improving [them],” she said.
Michael Noonan, Ireland’s finance minister, said he disagrees “profoundly” with the decision. "The decision leaves me with no choice but to seek cabinet approval to appeal," he said.
"This is necessary 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."