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Apple CEO Tim Cook. (Photo: Apple)
Apple CEO Tim Cook. (Credit: Apple)

Apple has benefitted from illegal tax deals with the government in Ireland, where it has operated an office for 36 years, giving it an unfair advantage over other businesses, a report from the European Commission alleges.

As a result, the commission has ordered Ireland to collect back taxes of more than $14.5 billion U.S. for the period between 2003 and 2014. The report found that Ireland gave Apple special tax breaks starting in 1991, and the company paid an effective tax rate of only 1 percent in Ireland in 2003 and .005 percent in 2014.

The EU forbids tax deals that give individual companies advantages over others.

Here is the meat of the commission’s allegations 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to the “head offices” were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force.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 also alleged that Apple recorded sales of products throughout the EU in Ireland rather than the countries where products sold. That issue is outside the reach of the commission, but it said Ireland may not have to collect as much in tax if other EU nations decided to tax those sales.

European Commission Apple Report by Nat Levy on Scribd

Apple CEO Tim Cook responded to the commission report in a blog post Tuesday morning, 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.

The Commission’s move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe. Ireland has said they plan to appeal the Commission’s ruling and Apple will do the same. We are confident that the Commission’s order will be reversed.

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 writes 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.

Apple is not the only company to be accused of getting unfair tax treatment in the EU. 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.

The commission is investigating tax deals in Luxembourg with Amazon and McDonald’s that may violate EU rules.

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