By Jennifer Rankin
Tech firm can could cut payments to Dublin if other member states demand a slice or it pays more to US parent company
Ireland may never see the full €13bn (£10.8bn) in unpaid taxes owed by Apple, the European commission has said, if other EU countries go after the American tech giant for a share.
The EU executive also said Apple could reduce its multibillion-euro tax bill to Ireland if it increased payments to its US parent company, as it revealed the full text of its landmark ruling against the US tech giant for the first time.
Margrethe Vestager, the EU competition commissioner, suggested Ireland may not see the full €13bn in back taxes if Apple chose to pay larger amounts to its US headquarters to fund research and development.
Speaking to the Irish Independent, she said the total paid to Ireland could be reduced because other EU member states may demand more tax from Apple if they concluded that the US tech firm had underpaid them, because it had been routing profits to Apple’s Irish headquarters in Cork.
The full text of the EU’s decision, published on Monday, sets the stage for a titanic legal battle, which pits the European commission against Apple and Dublin, with implications for hundreds of companies.
In August, the commission said a sweetheart deal devised by the Irish government had allowed Apple to pay tax of just 0.005% in 2014 and an average rate of 1% over many years.
Speaking on Monday, Vestager said the full amount may not be payable to Ireland.
Apple created two companies in Ireland, Apple Sales International and Apple Operations Europe, as it went on a journey to become the biggest profit-making firm in the world.
“The amount to be paid back to Ireland would also be reduced if the two companies were required to pay larger amounts of money to their US parent company to fund the research and development efforts,” Vestager said.
However, she also suggested other EU member states may want a slice. “Other countries, in the EU or elsewhere, can look at our investigation. If they conclude that Apple should have recorded its sales in those countries instead of Ireland, they could require Apple to pay more tax locally. That would reduce the amount to be paid back to Ireland,” she said.
Earlier in the year, the Danish politician said Ireland had given Apple a sweetheart deal worth €13bn. But the full 130-page ruling was only published on Monday, to allow lawyers to ensure confidential commercial information was kept out of the final report.
Hours ahead of publication, Dublin and Apple stepped up their war of words, vowing to fight the commission in court.
As it announced plans to lodge its appeal this week, Apple accused European regulators of a political crusade against a successful American company. In a personal attack on the Danish competition commissioner, a senior company executive said Apple was a convenient target for an official chasing headlines.
The company’s chief general counsel, Bruce Sewell, told Reuters: “Apple is not an outlier in any sense that matters to the law. Apple is a convenient target because it generates lots of headlines. It allows the commissioner to become Dane of the year for 2016,” he said, referring to the title accorded by Danish newspaper Berlingske last month.
Under Vestager, the commission has also taken on McDonald’s, Starbucks and Italy’s Fiat over tax, and launched investigations into overcharging by Gazprom, one of Russia’s most powerful companies
In a submission to Europe’s second-highest court, Apple also accused the commission of ignoring Ireland’s tax experts. “The Irish have put in an expert opinion from an incredibly well-respected Irish tax lawyer,” Sewell said. “The commission not only didn’t attack that – didn’t argue with it, as far as we know – they probably didn’t even read it. Because there is no reference [in the EU decision] whatsoever.”
Only national tax authorities can decide whether they wish to pursue Apple for taxes on profits booked in Ireland.
While Brussels is confident it will win its case, the Irish government accused the commission of riding roughshod over Ireland’s sovereignty, by trying to rewrite the country’s corporation tax rules.
Unveiling its formal legal submissionon Monday, the finance department described how low taxes are the point of its sales pitch to foreign investors, arguing it was perfectly legal to levy far less tax on profits than imposed by competitors.
Under EU rules, governments have powers to set their own corporate tax rates, but are forbidden from giving an unfair competitive advantage to firms on their territory.
Ireland levies a tax rate of 12.5%, one of the lowest in the EU, nearly a third of the US rate of 35%. Irish ministers have stressed its low corporate tax rate is non-negotiable, viewing it as the linchpin of the economy. The low headline rate, combined with complex use of shell companies, has helped Ireland to draw in scores of tech and pharmaceutical firms.
Apple employs 6,000 people in Cork, Ireland’s second city, and has pledged to remain loyal to the city it chose as its European base more than 30 years ago.
Ireland’s finance ministry contended that the commission had misunderstood EU competition rules, which are intended to ensure a level-playing field across the union. “The state aid rules by their nature cannot remedy mismatches between tax systems on a global level,” it said, contesting the EU’s argument that Apple got benefits denied to other companies based in Ireland.
Vestager made clear the commission was standing its ground: “This decision sends a clear message: member states cannot give unfair tax benefits to selected companies. No matter if they are European or foreign, large or small, part of a group or not.”