EU Orders Apple to Pay $14.5 Billion in Taxes to Ireland

August 31, 2016

gavel and scaleCompetition law authorities for the European Union recently ordered Apple to pay approximately $14.5 billion to the government of Ireland for unpaid income tax.  Both Apple and the government of Ireland have indicated that they plan to appeal this ruling.  If allowed to stand, the action by the EU authorities could substantially undermine the Irish government’s strategy for attracting major global companies to locate and operate in Ireland.

EU authorities contend that the government of Ireland provided income tax benefits to Apple and other major international companies which constitute a form of unfair competition under EU rules.  The EU claims that, for a period of approximately a decade, Irish tax authorities permitted Apple to use a variety of tax avoidance mechanisms resulting in an effective tax rate of less than one-tenth percent for that period of time.

The extremely low tax rate reportedly provided incentive for Apple to establish a major presence in Ireland.  EU authorities also claim that the artificially low rate granted to Apple encouraged the company to route its earnings from Europe and other regions of the world, apparently including India, the Middle East, and Africa, through its subsidiary in Ireland.

Matsuura Blakeley BannerIrish authorities reportedly took the position that Apple’s earnings should be taxed on the basis of the volume of the earnings that were generated in Ireland.  Earnings that passed through Apple’s Irish subsidiaries but were generated outside of Ireland were apparently not taxed by the Irish authorities.  This approach resulted in the seemingly low effective tax rate for Apple.

EU competition law authorities claim that Ireland’s arrangement with Apple is a form of unfair competition.  The authorities allege that Ireland used unreasonably low tax rates and other tax benefits to attract Apple to base its European operations in Ireland for tax purposes.  As a penalty for this action, the EU ordered Apple to pay approximately $14.5 billion in unpaid taxes to Ireland.

Understandably, Apple expressed its intention to appeal the EU ruling.  Additionally, the government of Ireland indicated it too plans to appeal the ruling.  The United States Treasury Department also reportedly expressed concern regarding the EU ruling.

The government of Ireland plans to contest the EU decision, presumably because the ruling could undermine Ireland’s active and to date highly successful strategy of attracting major international companies to locate their European business operations in Ireland through aggressive use of tax incentives.  Irish authorities do not apparently want to receive the payment ordered by the EU in this case, and this ruling by EU authorities could threaten a major component of Ireland’s overall economic growth strategy.

While it is entirely reasonable for EU authorities to assert their jurisdiction in order to ensure that European national governments do not provide unfair state assistance to selected businesses, national tax policy should always remain under the control of each national government.  EU authorities should not adopt a role of global tax enforcement authority.  The EU action in this case seems to involve significant over-reaching of its legitimate authority resulting in unjustified intrusion into Irish sovereignty.