Europe opens tax probe into Apple in Ireland

Europe opens tax probe into Apple in Ireland

Summary: Tax rulings relating to three companies in Europe are to be examined by European authorities. If Apple's tax in Ireland is found to breach tax rules, "recovery" could be on the cards.

TOPICS: Government, Apple, EU
Apple CEO Tim Cook visiting the company's Cork facility earlier this year
Apple CEO Tim Cook visited the company's Cork facility earlier this year. Image: Apple

The European Commission has confirmed it is to investigate Apple's tax affairs in Ireland.

The probe, announced on Wednesday by Europe's competition commissioner Joaquín Almunia, will look into whether the low rate of tax Apple pays in Ireland breaks European state aid rules.

Apple pays less than two percent tax in the country — far less than the standard 12.5 percent corporation tax — after it said it had obtained a better rate through negotiations with the Irish government. The government has denied the claims.

Along with Apple in Ireland, the EC also opened investigations into Starbucks in the Netherlands and Fiat Finance and Trade in Luxembourg to see if the countries' tax rulings are favouring the three companies, which would be in breach of European Union state aid rules. The investigations are into the countries' tax rulings, and not into the companies themselves.

"We have reason to believe, at this stage, that in these specific cases, the national tax authorities have renounced to tax part of these multinationals' revenues by allowing them to lower their taxable profits," Almunia said.

Almunia said the Commission had "serious doubts" about the tax rulings' compatibility with state aid rules, saying that "selective tax advantages" could have been granted to the three firms which could "give these companies an unfair advantage and will distort competition".

"When public budgets are tight, and citizens are asked to make efforts to deal with consequences of the crisis, it cannot be accepted that large multinationals do not pay their fair share in taxes," he said.

Tax avoidance schemes, practised by Apple, Amazon, and Google, are not illegal, but have proved unpopular with governments and consumers alike. When asked about Google, Alumunia hinted that investigations into other companies haven't been ruled out.

"We are starting our work based on the information we receive... This is the beginning, not the end, of the our work to enforce how state rules are applied particularly with multinationals," he said.

News of the Apple tax investigation broke last night, after Irish state broadcaster RTE revealed the EC probe would be announced this week.

The investigation will gather responses to the investigation from the member states in question and from third parties. Almunia did not say how long the investigation might last. Should the tax rulings be found to breach state aid rules, the commissioner said that the commission is "open to the possibility of recovery" — companies being asked to pay extra tax — and local tax rules may also be changed. However, he said, the probe has only just began: "The outcome of the investigation is still open, we're at day number one."

Apple has also come under fire its in home country for its tax arrangements. Last May, the US Senate permanent subcommittee on investigations looked into the company affairs, accusing it of shifting billions of dollars of profits away from the US and into Ireland using a variety of offshore arrangements.

"One of Apple's more unusual tactics has been to establish and direct substantial funds to offshore entities in Ireland, while claiming they are not tax residents of any jurisdiction. For example, Apple Inc. established an offshore subsidiary, Apple Operations International, which from 2009 to 2012 reported net income of $30bn, but declined to declare any tax residence, filed no corporate income tax return, and paid no corporate income taxes to any national government for five years.

A second Irish affiliate, Apple Sales International, received $74bn in sales income over four years, but due in part to its alleged status as a non-tax resident, paid taxes on only a tiny fraction of that income, the committee said in its report at the time.

Apple said in a statement: "Apple is proud to have been doing business in Cork, Ireland since 1980. We have grown our workforce to more than 4000 employees, who serve our customers through manufacturing, tech support and other critical functions. These employees play an important part in Apple’s success and continued growth in Ireland.  Success and growth come from the hard work of our Irish employees not from any special tax deal with the Irish government. We have received no selective treatment from Irish officials. Apple is subject to the same tax laws as scores of other international companies doing business in Ireland.   

"Apple pays every euro of every tax that we owe. Since the iPhone launched in 2007, our taxes in Ireland have increased tenfold."

Europe has signalled its plans to turn up the heat on tax avoiders in recent weeks.

At the end of May, the EC's High Level Expert Group on Taxation of the Digital Economy published a report into how companies selling goods and services online should face common tax regimes across Europe. The aim is to prevent companies having their headquarters in a low-tax country allowing them to make millions in revenue in other higher-tax states but pay very little tax there.

EU tax commissioner Algebras Bemata said at the time: "The EU must throw its full collective weight behind international efforts to clamp down on tax avoidance. Member states must speak with one voice, reflecting shared priorities... I particularly welcome the emphasis that the report puts on tackling harmful tax competition, and the recognition that this involves more than just abolishing harmful regimes."

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Topics: Government, Apple, EU

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  • WOW. This is going to be great for Micro Shills....

    Waiting to hear from the usual suspects. Will highlight them when they appear.
    • Why the Micro shills?

      If they succeed against Apple, MS will be next, most companies, including Google, Microsoft, Cisco, Citrix etc. are all based in Ireland for this reason.
  • Not cut and dry

    wright_is is correct. Whatever the EC discovers it will not just affect Apple. Nor just the multinational ICT sector. Ireland is/was also a manufacturing base for a lot of Big Pharma producing patented medicine, although a lot is now off-patent and the sector has shrunk.

    In any event, its not a cut and dried case. The same rules apply to all companies, foreign and domestic. It looks like the investigation will concentrate on loopholes introduced to or previously existing in the Irish tax code, some in response to lobbying.

    However, they are general loopholes - any corporate can take advantage of them. It is the loopholes that allow Apple to pay 2% corporation tax instead of 12.5%. But then supposedly, in France (as the Irish Prime Minister [Taoiseach] loves to claim) the effective rate is 8.2% even though the headline rate is 33%. 12%/35% for the USA. Loopholes.

    The Irish Government will argue that this is normal tax policymaking, well within the normal cut and thrust of tax changes throughout Europe, the USA or anywhere else. They will argue that State Aid requires specificity - rules that only benefit specific individual corporates. That question is likely to go right up to the European Court of Justice.

    The current taxation policy dates back to the 1990's when Ireland was forced to abandon a sectoral policy (manufacturing corporates paid 10%, every other corporate 40%) and adopt a general rate of 12.5%. That change was signed off by the EC at the time and is unlikely to come under threat. Nor is the 0% corporate tax rate in Estonia. The issue is much more likely to be with the loopholes.

    If certain loopholes are closed (some have been already) or clawback is imposed, that will change things for sure but, as I understand it, there is no appetite in the OECD for tax apportionment, nor is there scope for it under current EU or international treaties, so transfer pricing and tax competition will continue.

    Finally, I may be misunderstanding, I am not a tax lawyer, but if there is a tax clawback, will it not be the countries that provided the "illegal State Aid" in the form of a tax loophole that gets the imposed taxes otherwise foregone, i.e. Ireland, the Netherlands and Luxembourg?
  • That is what tax collectors do

    If it's found that Apple owes money, every legal means will likely be employed to collect the debt. But that determination will, no doubt, need to be made by one or more courts.

    Frankly, I have no idea whether or not Apple broke the law, and I doubt anyone else likely to post here knows either.
    John L. Ries
    • Not Apple

      The story clearly notes that its not Apple but the nations such as Ireland, that broke EU rules (if true). Personally I think what all these companies do is legal (if in a very twisted way and paid for by lobbying more than accountants) but is it moral? Anytime any one of these blowhards start talking about "social justice" or welfare or anything other advocacy that cost the actually taxpayers money, I would like to punch them in the eye. You can ran Big Silicon right up there with Big Oil and Big Pharm as far ethics.
      Rann Xeroxx
      • Edit

        Wish ZDNet had an edit button, missed a few things in that post. When I rant, my fingers get carried away.
        Rann Xeroxx
      • Correct

        I got that on second reading, but we're not allowed to edit our comments. And I'm not a terribly big fan of the EU, but in a democracy, citizens tend to get the sorts of governments they deserve.
        John L. Ries
  • Avoidance, the companies not tax;

    I have a relatively simple way to deal with the multinationals; as far as possible I( do not do business with the ones that clearly evade tax by off-shoring, difficult to do but I try.
    This includes Apple, Starbucks, (Google as much as I can but that is tricky), Cadbury, Nero (only just discovered that my favourite coffee shop paid nowt in the UK for last 3 years, Boots. The list goes on but I simply vote with my feet.
    • I don't think it's a moral issue...

      ...except to the extent that fraud is involved. There will always be some degree of tax avoidance, but compliance is definitely better when the rates are low and the rules are simple (and the latter makes evasion much harder). But it's the job of elected officials to write laws, not that of corporate executives.
      John L. Ries