London: In a setback to US tech giant Apple just before the much-awaited launch of its iPhone 7, the European Commission on Tuesday announced that Ireland must demand 13 billion euros in taxes from the Cupertino, San Francisco-based company.
"We have concluded that Ireland granted undue tax benefits of up to 13 billion euros to Apple. This is illegal under EU state aid rules, because it allowed Apple to pay substantially less tax than other businesses. Ireland must now recover the illegal aid," an EU statement read.
Following an in-depth state aid investigation launched in June 2014, the European Commission concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991.
"The rulings endorsed a way to establish the taxable profits for two Irish incorporated companies of the Apple group (Apple Sales International and Apple Operations Europe), which did not correspond to economic reality: almost all sales profits recorded by the two companies were internally attributed to a head office," the statement further said.
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to the "head offices" were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force.
"Member States cannot give tax benefits to selected companies - this is illegal under EU state aid rules. The Commission's investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years," said Commissioner Margrethe Vestager, in charge of competition policy.
"In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014," Vestager added.
This selective tax treatment of Apple in Ireland is illegal under EU state aid rules, because it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules.
"Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to 13 billion euros, plus interest," the EU statement said.
In a white paper, the US Treasury Department recently warned the EU about taking any action against Apple and other US companies like Amazon and Starbucks.
"The investigations have global implications as well for the international tax system and the G20's agenda to combat (tax avoidance) while improving tax certainty to fuel growth and investment," Robert Stack, a Treasury Department deputy, wrote in a blog post.
According to the white paper, the EU investigations could "create an unfortunate international tax policy precedent".