The news broke at the very end of August that Apple had been ordered to pay up to $14.5 billion for illegal tax benefits in Ireland, raising some serious questions about the EU’s arrangement with US multinationals. The relationship has always been a prickly one, with the EU concerned about protecting itself from monopolization and clamping down on some complex, morally ambiguous, but effective, tax arrangements made by some of the world’s biggest companies.
The European Commission found that Ireland had been granting tax benefits to Apple specifically, a move illegal under EU law. ‘Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules,’ Commissioner Margrethe Vestager wrote. ‘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. 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.’
The report states that almost all profits allocated to their head office existed only on paper, and were subsequently left untaxed. The Commission iterated that ‘this decision does not call into question Ireland’s general tax system or its corporate tax rate’ - which stands at a low 12.5% - but the country has been told to ‘recover the legal aid,’ to the tune of $14.5 billion.
The sheer size of Apple’s tax bill is set to cause a significant political problem for Ireland’s government. The money will likely take years to come into government hands, after being placed into an escrow account for the duration of a series of appeals - during which time the government will doubtless be heavily criticised for avoiding collecting the money from Apple. The amount is such that it’s become a big story, and the avoidance of a $14.5 billion windfall will be a difficult political move for the Irish public to accept. Indeed, Minister for Finance Michael Noonan has already expressed his displeasure at the ruling, in a strongly worded statement declaring his intention to appeal.
But the decision reflects a wider EU backlash against large (mainly US) multinationals operating in European markets. Tax avoidance is an injustice that’s found significant resistance from grass roots organizations and some governments in recent times, which makes the EU’s ruling incredibly significant given Apple’s size. The decision may encourage those companies with complex and legal, yet morally duplicitous tax arrangements to reexamine their structures.
In the wake of the decision, the UK has been quick to announce that Apple is ‘welcome’ to cross the Irish Sea. The UK alone reportedly loses out on an approximate £69.9 billion per year thanks to corporate tax avoidance, though, and the backlash to such a move would likely be strong. The situation for tax in the UK post-Brexit is yet to be made clear, with a few options available, but it remains to be seen whether the nation will clamp down or relax its tax collection to encourage investment in the area. Many will celebrate the EU’s decision to fight back against legal corporate tax evasion, and others will see it as yet another stick from the EU to beat US multinationals with. Either way you look at it, though, the decision is a historic one in a world growing increasingly dominated by a handful of vast companies.