Apple owes $14.5 billion in back taxes, European authorities say

European authorities ruled on Tuesday Apple struck a sweetheart deal with Ireland that allowed the tech giant to underpay its taxes by more than $14.5 billion over more than a 10-year period.

Apple runs its European operations from Ireland, which has a 12.5 percent corporate tax rate. But its agreement with the Irish government allowed Apple to pay a tax rate of just 1 percent or even less — .0005 percent, in some years — according to the European Commission, which launched an investigation into Apple’s tax strategies in 2014.

Apple must now repay those taxes, the commission ruled.

“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,” European Commissioner Margrethe Vestager, who is in charge of competition policy, said in a statement from Brussels. “Member States cannot give tax benefits to selected companies. This is illegal under EU state aid rules.”

Both Apple and Ireland said they would appeal.

“Apple follows the law and pays all of the taxes we owe wherever we operate,” the company said in a statement.

The company also took aim at the E.U. move as having a “profound and harmful effect on investment and job creation in Europe.”

“The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process,” the Cupertino, Calif.-based company said.

In Dublin, Ireland’s finance minister, Michael Noonan, denied that the country sidestepped E.U. tax rules and vowed to challenge the decision — raising yet another potential flash point between Brussels and member states over the reach of regulations and oversight.

Such questions helped tip the scales in Britain in June’s vote to leave the 28-nation bloc, and have complicated transatlantic trade talks.

“This is necessary to defend the integrity of our tax system, to provide tax certainty to business and to challenge the encroachment of E.U. state aid rules into the sovereign member state competence of taxation,” Noonan said in a statement.

Across Europe, just how much — or little — U.S. multinational firms are paying in taxes is coming under increasing scrutiny.

French authorities recently raided the Paris headquarters of two U.S. corporate giants, Google and McDonald’s. And European authorities have accused the Netherlands of allowing Starbucks to avoid more than $30 million in taxes.

The Obama administration has repeatedly objected to these investigations, saying they unfairly targeted American companies. But it may not be able to stop them.

The fight, in essence, centers on the more than $2 trillion in overseas profits that U.S. corporations have refused to bring back to the United States, where they would face a hefty tax bill. U.S. lawmakers and regulators have lamented the practice but have had little success in pressing the corporations to bring the money home.

Now European tax authorities are also eyeing this money, international tax experts say. The profits have often been routed through low-tax European countries, potentially cheating others nations in which the companies operate, they argue.

Apple has the largest stash of foreign profits — $200 billion — of any U.S. multinational company and the investigation into its tax practices was being closely watched for a sign of how aggressive European authorities would be.

“Perhaps the [European Commission] decision will spur the U.S. authorities to step up their own efforts to collect more taxes from Apple. Apple may be a tax cheat, but Apple is our tax cheat,” said Steven Rosenthal, a fellow at the nonpartisan Tax Policy Center.

The Obama administration and members of Congress have repeatedly objected to the European investigations into the tax strategies of U.S. multinational companies. U.S. firms are being targeted for unfair treatment that could ultimately hurt American taxpayers, administration officials have said.

The Treasury Department “is disappointed that the Commission is acting unilaterally and departing from the important progress the U.S., the EU, and the rest of the international community have made together to combat tax avoidance,” an agency spokesperson said in a statement.

Meanwhile, trade talks between the United States and the European Union have been stalled, and could spill over to the next White House administration.

On Tuesday, French President François Hollande described the negotiations as “bogged down” and unbalanced.”

France’s trade minister, Matthias Fekl, said he would request a halt to the Transatlantic Trade and Investment Partnership negotiations at a meeting of trade ministers in September.

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SOURCE: Washington Post