EU says Apple gets illegal tax benefits in Ireland

  • By Juergen Baetz Associated Press
  • Tuesday, September 30, 2014 2:46pm
  • Business

BRUSSELS — Apple risks having to repay Ireland tax rebates worth billions of dollars after the European Union’s competition watchdog said Tuesday the company appears to be benefiting from illegal tax deals there.

In a preliminary report into the company’s overseas tax practices, the 28-nation bloc’s executive Commission said the low tax treatment Ireland is granting Apple counts as state aid and could be illegal under EU law.

If the finding is confirmed, Apple Inc. could face a huge repayment bill because it funnels the bulk of its international sales through subsidiaries in Ireland.

To keep market competition fair, the EU forbids governments from helping individual companies. The EU first announced the tax probe in June, also targeting coffee chain Starbucks and others as part of a crackdown on multinationals exploiting tax loopholes.

The EU Commission is now requesting further documents from Ireland before making a legally binding decision on whether the rebate granted to Apple is illegal and must be recouped, wholly or partially.

The EU probe focuses on exaggerated transfer pricing, where one part of a company charges another part an inflated price for goods or services to shift profits to low-tax locations.

If Apple had to repay some taxes, the money would come as a windfall to Irish state coffers. However, fearful of losing its reputation as a business-friendly country with low corporate taxes, the Irish government is adamant that no EU rules have been breached.

The Commission said the tax deals Ireland struck with Apple in 1991 and in 2007 show “several inconsistencies” and may not comply with international taxation standards. The Brussels-based executive body also was critical of the fact that Apple’s applicable tax rate appears to have been the result of “a negotiation rather than a pricing methodology” which a “prudent, independent” tax authority should not have accepted.

The Commission added documents provided by Irish authorities, including minutes of meetings with Apple’s tax advisers, fail to provide a consistent explanation for the agreed tax rates. It did not publish an estimate for Apple’s effective tax rate in Ireland.

Apple maintains it has not received a favorable treatment in Ireland.

“We’re subject to the same tax laws as the countless other companies who do business in Ireland,” the company said in an emailed statement. “Apple has received no selective treatment from Irish officials over the years.”

The company added that its tax payments to Ireland increased tenfold since it launched its first iPhone in 2007. In the statement, Apple also said that on a global level, “comprehensive corporate tax reform is badly needed.”

Apple’s tax practices have also attracted scrutiny in the United States, where a Senate Committee last year published a scathing report on the Cupertino-based firm’s tax schemes.

The report held up Apple as an example of legal tax avoidance made possible by the complicated U.S. tax code, estimating the firm avoided at least $3.5 billion in U.S. federal taxes in 2011 and $9 billion in 2012 by using its tax strategy.

Democratic Senator Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations, said Tuesday the EU probe underscores the need to close loopholes that “allow Apple-type gimmicks whose sole purpose is to avoid paying U.S. taxes.”

“Apple developed its crown jewels — lucrative intellectual property — in the United States, used a tax loophole to shift the profits … offshore to avoid paying U.S. taxes, then boosted its profits through a sweetheart deal with the Irish government,” he said.

Levin added Apple’s Irish tax rate “has no rational basis” because it is the result of what Ireland accepted when threatened with job losses.

The company currently employs some 4,000 people in Cork, Ireland.

Apple — one of the world’s most valuable and profitable firms — sat on some $164 billion in cash and cash equivalents, with $138 billion stashed away in foreign subsidiaries, according to its latest quarterly report in June. The company estimated its effective U.S. tax rate is 26.1 percent, as opposed to the statutory U.S. rate of 35 percent, primarily because of undistributed foreign earnings.

“A substantial portion” of those foreign earnings was generated by subsidiaries organized in Ireland, Apple said in the regulatory filing, adding that “such earnings are intended to be indefinitely reinvested outside the U.S.”

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.