...challenging tax rulings
Following tax returns that placed Apple’s dealings in the public spotlight, the California-based tech giant has once again found itself in the headlines as a European Commission has ordered Ireland to collect €13bn (£11bn) from Apple in unpaid taxes.
With a potentially long and arduous process of appeals, litigation, and cross-border diplomatic disputes, Luke Corcoran – specialist in commercial law – explains the likely outcome from an impasse between the EU and a commercial heavyweight such as Apple.
The ruling of the European Commission comes after a 3-year investigation, which focussed on the tax benefits Ireland offered Apple to base European operations in the country.
Both the Irish government and Apple themselves have indicated that they will challenge the ruling, as officials in Ireland claim it undermines their tax system and Apple claim that they pay all of the tax that they legally owe.
The decision of the EU Commission centres around the alleged tax benefits that have been afforded to Apple by Ireland, as it is claimed that Apple have been paying an effective tax rate of less than 1%.
Tax benefits and effective rates
With multinational corporations increasingly moving sales and operations between countries to receive the most favourable tax bill – a process that is in the most part legal – this ruling sees the EU pitted against a national government and a huge commercial heavyweight.
The Commission claims that – despite Ireland’s corporate tax rate sitting at an already attractive 12.5% – Apple had effectively paid 1% tax on its European profits in 2003 and just 0.005% in 2014.
While the ruling may set a precedent on the tax dealings of large companies, the intention of the Commission was to set up a fair playing field for businesses, as it is claimed that Apple received preferential treatment not afforded to other companies in Ireland.
Affecting investment or paying a fair share?
The implications of the ruling could be extensive, as the EU is facing challenges from Ireland and Apple, while the US Government has weighed in and claimed that the EU is becoming a tax authority that is unfairly targeting American companies.
In previous rulings, the Commission has instructed to recover up to €30m (£25.6m) from Starbucks, while Luxembourg was told to claim a similar amount from Fiat.
The governments of countries involved in these tax rulings have poured scorn on the EU’s rulings, as they claim that their tax systems are robust and any benefits afforded to individual companies help boost foreign investment.
Commenting on the case, Luke says:
“While this is not the first case of the European Commission ordering a national government to collect tax from a multinational corporation, the €13bn figure is a record amount.”
“The Commission is likely to face bitter opposition to this ruling, with Apple’s army of lawyers likely to highlight the fact that Apple is one of the world’s highest tax payers and Ireland’s government keen to encourage foreign investment through the lowest tax rate in the developed world.”
“Legally speaking, a challenge could be made against the Commission by claiming that it is acting beyond its remit in advising national governments on tax collection; however this debate extends beyond legal matters and includes a number of political considerations, as politicians look to encourage foreign investment without making their nation look like a tax haven.”
“Whether this ruling is upheld and adhered to remains to be seen, however the work of the Commission in attempting to develop a coherent response to tax avoidance is commendable, even if the global co-operation that is needed isn’t always forthcoming.”
Written by Luke Corcoran.
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