The European Commission’s demand for Apple to pay a record 13 billion euros in back taxes in Ireland has triggered warnings that it could damage transatlantic economic ties. Others in Washington, however, used the case to call for an international tax system to ensure revenues are paid where they are due.
Brussels said Apple, the world’s most valuable company, avoided virtually all tax on its business in the bloc by illegal arrangements with Dublin which gave the company an unfair advantage over competitors.
Apple and the Irish government immediately said they would appeal against the European Commission ruling, with the iPhone maker warning it could cost European jobs.
“The most profound and harmful effect of this ruling will be on investment and job creation in Europe,” said Apple chief Tim Cook, adding that the Silicon Valley giant was the biggest taxpayer in Ireland, the United States and the world.
The White House meanwhile cautioned against “unilateral” measures by the EU.
Ireland has attracted multinationals over many years by offering extremely favourable sweetheart tax deals to generate much-needed jobs and investment.
But after a three-year investigation Brussels said the arrangement with Apple broke EU laws on state aid.
“This decision sends a clear message. Member states cannot give unfair tax benefits to selected companies, no matter if European or foreign, large or small,” EU Competition Commissioner Margrethe Vestager said.
The findings come amid ongoing tensions between Washington and Brussels over a series of EU anti-trust investigations targeting other giant US companies such as Google, Amazon, McDonald’s, Starbucks and Fiat Chrysler.
Washington has made increasingly angry comments over the case in recent weeks, and on Tuesday it echoed Apple’s warnings that the tax bill could hurt the European economy.
“We are concerned about a unilateral approach,” said White House spokesman Josh Earnest, adding that the move “threatens to undermine progress that we have made collaboratively with the Europeans to make the international taxation system fair.”
The US Treasury said the ruling “could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the EU.”
A senior Democratic senator said Brussels had made “a cheap money grab” for US revenues.
US Representative Kevin Brady, Republican chairman of the House Ways and Means Committee, called the decision “a predatory and naked tax grab,” in a statement.
US probe first alerted EU to tax schemes by Apple and others
But in Brussels, EU officials were quick to highlight that it was Washington which put them on to the Apple tax scheme in the first place.
It was a US Senate report in May 2013 revealing the tech giant’s deal with the Irish government to rule a big slice of its global earnings untaxable that prompted the European Commission to launch its own inquiries the following month.
Carl Levin, a senator who chaired hearings into Apple’s taxes three years ago, said the Europeans were only trying to take what US authorities had failed to claim by not closing loopholes that allowed firms to hoard profits overseas.
“The IRS has failed to stake a claim for US taxes on those revenues,” he said in a statement, referring to the US Internal Revenue Service. “So Europe attempts to fill the vacuum. Shame on Apple for dodging US taxes. Shame on the IRS for failing to challenge Apple’s tax avoidance.”
EU listened to US Senate
EU Competition Commissioner Margrethe Vestager, a straight-talking Dane who dismisses talk of leading an anti-American crusade, said the hearings at the Senate Permanent Subcommittee on Investigations, led by Levin, gave Brussels grounds to demand disclosure by Apple and Ireland.
“The Commission listened and decided to look deeper into the matter,” Vestager said in June, crediting media reporting and hearings in the British parliament for also providing evidence to help break secrecy around nearly 1,000 cases across Europe.
In its judgment on Apple, the Commission said the US and other countries were welcome to try and claim some of the unpaid taxes for themselves – highlighting just the complaints of Levin and other senators three years ago when they skewered Apple CEO Tim Cook for failing to bring cash home.
The Brussels crack down on tax avoidance is not isolated. In Washington, the Obama administration has taken its own action to curb tax avoidance schemes lately. In April, amid public controversy over drug company Pfizer Inc’s proposed merger with Allergan Plc of Ireland, it announced plans to curb so-called “tax inversions”, by which US firms have undertaken cross-border mergers in order to switch to a domicile abroad and so avoid US taxes.
Members of both parties in Congress pointed to the EU decision as evidence that the US tax code should be rewritten to give American companies an incentive to bring home some $2.1 trillion in US corporate profits held abroad.
“Above all, this is yet another reason why we need to fix our tax code,” House Speaker Paul Ryan, the highest-ranking elected Republican, said in a statement. “Today’s decision should be a spur to action.”
Senator Charles Schumer, the chamber’s No. 3 Democrat said, “This is yet another example of why we need to reform the international tax system to ensure these revenues come home”.
For Marcel Fratzscher, president of leading German economic think-tank DIW Berlin and author of a new book on growing inequality, the mudslinging between politicians reflects how global corporations have exploited competition for investment to blunt states’ efforts to co-operate against tax avoidance.
“Companies are playing one government against another,” he told Reuters.
But these days could be coming to an end. Some analysts said the EU’s Apple tax ruling, if upheld, could change the calculus that has kept US corporate money overseas if it means higher taxes in low-tax European countries like Ireland.
“The scheme of US multinationals parking money offshore indefinitely, taxed at zero, may be coming to an end,” said Steven Rosenthal of the Tax Policy Center research group.