Apple owes $14.5 billion back tax, says Europe

August 30, 2016 // By Peter Clarke
The European Commission has ruled that over several years Ireland has granted unjustifiable tax benefits to Apple worth up to €13 billion (about $14.5 billion), which the US computer company must now pay back to the Irish state – plus interest.

The ruling is that Ireland allowed Apple to organize its business in a way that allowed it pay substantially less tax than other businesses and that this is illegal under European Union state aid legislation.

The conclusion comes at the end of a European Commission investigation that began in June 2014 and found that two tax rulings issued by Ireland to Apple have artificially lowered the tax paid by Apple in Ireland since 1991. The European Commission ruling only covers the period 2003 to 2014.

Margrethe Vestager, European Commissioner for Competition Policy.

"Member states cannot give tax benefits to selected companies – this is illegal under EU state aid rules," said Margrethe Vestager, Commissioner in charge of European Union competition policy, in a statement. "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."

Ireland’s corporation tax rate is set at very low 12.5 percent to try an attract business to headquarter operations in the country but the deal with Apple meant the company was paying less than 1 percent.

The European Commission found that Apple was allowed to set up two Irish incorporated companies of the Apple group – Apple Sales International and Apple Operations Europe – to which all sales of Apple products in Europe were attributed. In addition, sales profits were internally attributed to a virtual "head office" that did not exist in any juridstiction and did not pay tax in any country.

European Commission's view of how Apple assigned European profits to a "virtual" head office that paid no tax.

And this method, accepted and endorsed by Ireland, is how Apple moved to an almost zero tax bill in