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iPhone maker’s tax arrangements in Ireland found to have breached state aid rules.
The European Commission on Tuesday ordered Ireland to recover €13 billion in unpaid taxes from Apple.
An investigation launched in June 2014 concluded that the tax arrangements of two Apple subsidiaries incorporated in Ireland artificially lowered the iPhone maker’s taxable earnings.
"Member states cannot give tax benefits to selected companies – this is illegal under EU state aid rules," said EU competition commissioner Margrethe Vestager, in a statement.
"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% on its European profits in 2003, down to 0.005% in 2014," she said.
One of Apple’s Irish units, Apple Sales International, buys Apple products from manufacturers around the world and sells them in Europe, the Middle East, Africa and India. When a customer in one of these regions buys an Apple device, they are entering into a contract with Apple Sales International in Ireland.
However, the vast majority of the sizeable profits generated by the subsidiary were attributed internally to a ‘head office’, which according to the European Commission existed only on paper and was not subject to tax in any country. The activities of this so-called head office consisted solely of occasional board meetings, and it could not have generated the profits attributed to it, the Commission said.
The same arrangement was used by Apple’s other Irish unit, Apple Operations Europe, which was responsible for manufacturing certain computer products for Apple.
While this was legal under Irish law, it constituted an undue advantage to Apple that is illegal under the EU’s state aid rules.
"Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest," the Commission said.
