Apple and the Irish government are disputing an order from the European Commission requiring the technology giant to pay $14.5 billion in back taxes due to allegedly illegal tax deals in Ireland, where it has had an office for 36 years.
Here is the meat of the European Commission’s allegations, published in August, against two Apple companies, Apple Sales International and Apple Operations Europe:
Almost all sales profits recorded by the two companies were internally attributed to a “head office”. The Commission’s assessment showed that these “head offices” existed only on paper and could not have generated such profits. These profits allocated to the “head offices” were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force.
The commission said these special tax breaks, starting in 1991, allowed Apple to pay an effective tax rate of only 1 percent in Ireland in 2003 and .005 percent in 2014. The European Union forbids tax deals that give individual companies advantages over others.
Irish law dictates that foreign companies do not have have to pay income tax on profit generated outside Ireland. Since the profits in question were generated primarily by engineers and teams mostly in the U.S., this money wouldn’t have been taxable in Ireland.
The Irish government released a rebuttal of the commission’s charges Monday, saying that it misinterpreted Irish law, disregarded information from Ireland and failed to act impartially. An Roinn Airgeadais of Ireland’s Department of Finance wrote that Apple received no special treatment, and the company was following its laws correctly. Additionally, the commission did not give Ireland a chance to comment on some of the more important aspects of the case before a decision was published, Airgeadais wrote.
Apple has started publicly laying out its legal challenge against the commission. In an interview with Reuters, Apple General Counsel Bruce Sewell’s said the commission did not conduct a thorough enough investigation and ignored important information from Irish tax experts. He added that Apple is being singled out because its success will lead to a more attention-grabbing case.
“Apple is not an outlier in any sense that matters to the law. Apple is a convenient target because it generates lots of headlines,” Sewell told Reuters
Shortly after the commission announced its findings, Apple CEO Tim Cook responded in a blog post, arguing that the company did not receive a special deal. He said Apple is the largest taxpayer in Ireland, the U.S. and the entire world, and has complied with everything asked of it by nations where it operates.
“We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid,” Cook wrote.
He went on to say that the commission’s action sets the tone that any company could be forced to follow tax laws that never existed.
Apple is not the only company to be accused of getting unfair tax treatment in the EU recently. The commission has been investigating member states since 2013 looking for such deals. In October 2015, the commission found that Luxembourg and the Netherlands gave special deals to Fiat and Starbucks, respectively. Then in January, the commission concluded that tax deals granted to more than 35 companies by Belgium were illegal under EU state rules.
Apple set up its European home base in Cork, Ireland in 1980. The office started with just 60 people, and today Apple employs more than 6,000 people across Ireland. Cook wrote that Apple supports more than 1.5 million jobs throughout Europe — directly with the company, for developers creating apps and manufacturing companies building Apple products.