Business First Look

Ireland to appeal EU's 13 billion euro Apple tax order

The Republic of Ireland will appeal the European Union's order to collect 13 billion euros, or about $13.6 billion, in back taxes from Apple.

A balloon depicting Apple Inc. is tethered before a protest against household water charges by demonstrators urging the Irish Government to accept the European Commission's Apple tax ruling of 13 billion euros (about $13.6 billion) in back taxes, in Dublin, Ireland, in September.
Clodagh Kilcoyne/Reuters
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Ireland and Apple will appeal an order from the European Union that Ireland collect 13 billion euros (about $13.6 billion) in taxes from Apple, setting off a legal battle that could last years. 

The appeals, announced Monday, come nearly four months after EU competition authorities told Apple in August it would have to pay a record amount in a back-tax bill to account for gross underpayment of tax on profits across the European bloc from 2003 to 2014. Ireland charges the company for sales only on its own territory at Europe-low rates that, in turn, have been reduced by the use of shell companies at home and abroad.

In response, the Irish Department of Finance is arguing that it is completely legal for Ireland to levy less tax on profits than other countries do, and that by ordering Ireland to collect 13 billion euros from Apple, EU competition authorities are seeking to breach Ireland's sovereignty in national tax affairs. The EU, Ireland says, should police only illegal state aid that gives an unfair advantage to a particular company. Ireland's tax policy extends to all foreign companies on Irish soil. 

"The purpose of the state aid rules is to tackle state interventions which confer a selective advantage," the Department of Finance argued. "The state aid rules by their nature cannot remedy mismatches between tax systems on a global level." 

For decades, Ireland has charged a headline rate on corporate taxes of 12.5 percent, and has facilitated the complex use of shell companies that allow Apple and other high-tech global companies to pay less on non-US sales of goods and services. The 12.5 percent rate is less than half of the norm in Europe, and just over one-third of the American nominal rate of 35 percent. 

For its part, Apple is arguing that EU regulators ignored tax experts and corporate law and deliberately picked a method to maximize the penalty. Apple was singled out, senior executives claim, because of the success of the iPad and iPhone.

"Apple is not an outlier in any sense that matters to the law. Apple is a convenient target because it generates lots of headlines. It allows the commissioner to become Dane of the year for 2016," General Counsel Bruce Sewell told Reuters, referring to a title that was accorded to EU Competition Commissioner Margrethe Vestager by Danish newspaper Berlingske last month.

While the EU's order is not as large as it could have been, because of EU time limits that allow the judgement to include only potential tax infringements dating back to 2003 and not 1991, when Apple made its original tax deal with Ireland, Irish corporate tax specialists estimate that the order could end up totaling 19 billion euros (almost $20 billion) because of compounding interest from delayed payment. 

Apple plans to tell judges that the Commission disregarded tax experts brought in by the Department of Finance. 

"Now the Irish have put in an expert opinion from an incredibly well-respected Irish tax lawyer," Mr. Sewell said. "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. Because there is no reference (in the EU decision) whatsoever." 

The Irish Department of Finance has pledged to close its rules concerning shell companies, a move that is not expected to have a significant impact on global companies, as the companies can shift the same accounting strategies to other countries outside the European Union. 

This report contains material from the Associated Press and Reuters.