As you might have heard, recently, Margrethe Vestager, the EU Competition Commissioner announced that Apple has avoided about €13 billion (about $14.5 billion) in Irish taxes. That assessment covers profits generated by Apple, Inc. in EU member-states for the period 2003-2014.
According to Commissioner Vestager, the EU reached that decision based on an evaluation of the tax benefits permitted by Ireland’s tax authorities, which the Competition Commissioner argues violates EU rules regarding member states providing “state aide” to corporations doing business in the EU.
As an example of the benefits accorded Apple by Ireland’s taxing authority, Commissioner Vestager explained that in 2011 Apple’s international sales entity generated profits of €16B. Of that profit less than €50 million were “allocated” by Apple to its Ireland-based branch. The remainder was allocated to Apple’s international “head office,” which is structured as a “state-less” entity that is not subject taxes. As a result, Apples 2011 effective tax rate was approximately 0.05%. Additionally, according to Commissioner Vestager, by 2014, Apple’s “effective tax rate was 0.005%.” [For a description of Apple’s approach for managing their EU taxes, see “Apple’s dirty little tax secret – APPLE NEWS.”]
According to Commissioner Vestager, while its Irish sales branch actively coordinates Apple’s EU-based sales activities, its “head office” exists only on paper. It has no employees, no premises, and no business activities. Thus, the EU Competition authority argues that the costs allocated to that entity are subject to Ireland’s corporate tax rate, which is about 12.5%.
Commissioner Vestager admitted that, previously, Ireland’s taxing authorities approved Apple’s local corporate “tax” structure and policies. However, as noted above, the EU Competition authority has deemed Ireland’s approval of that structure in violation of the associated EU rules.
In an article summarizing the EU announcement, Bloomberg news stated that Ireland’s Finance Minister, Michael Noonan, and Lucas Maestri, Apple’s chief financial officer, stated that they will appeal the EU Competition Commissioner’s decision.