It looks like the European Competition (EU) finds Apple Inc. (NASDAQ:AAPL) guilty of taking unfair advantage of Irish authorities in its tax deal with Ireland.
According to EU Ireland made a deal with Apple that allowed the company to hide its billions of dollars in profits from tax in exchange for offering jobs within the organization.
According to Joaquin Almunia, EU Commissioner, Tax deals between Apple and Irish authorities between 1991 and the year 2007 have clauses that go against the laws set by the EU. Almunia mentioned this in the letter addressed to EU that was published today.
Apple however is not ready to take these allegations quietly; the company has already come forward saying that it did not receive any preferential treatment from the Irish government. On the other hand a spokesman representing Irish government also said that no EU rules were broken through the deal with Apple. However EU says that rules regarding tax were “reverse engineered” to spare Apple as much as possible; it claims that International Tax Rules were not even added to the deal with Apple by the tax authority of Ireland. It was observed that Apple’s profits from its devices increased in the country; whereas its profit that was taxable did not show the same result.
The Commission believes that Ireland went soft on Apple Inc. to secure jobs for the country; Apple’s Cork manufacturing plant has around 4000 employs. The Cork facility is the only facility of its kind operating outside the US.
According to an investigation by the US Senate last year, Apple has given rights to two subsidiaries, which are Irish-registered, to use the company’s intellectual property in Africa, Asia and Europe. The Senate also revealed that Apple’s agreements with Apple distributors and manufacturers allow the company to get huge flows of profits worth billions of dollars in its Apple Sales International (ASI) and Apple Operations Europe (AOE).
The EU is bent on investigating the tax rulings by Ireland that enabled ASI and AOE to announce a combined profit of only 40-80M Euros in the past few years. This profit was on an annual basis and was liable to tax. EU believes that this deal has saved Apple from paying taxes worth billions of dollars.
Apple will fight this battle with full force because if the EU ruling goes against the tech giant, the company will be forced to hand over the tax money to the government of Ireland, which would be a huge financial blow to Apple. Experts however believe that it won’t come down to such a drastic ending; it is highly possible that Irish government will be forced to show less leniency in making deals with multinationals operating within the country.
EU’s another concern is the fact that this particular tax deal, which was supposed to have a limit of 5 years, went on for 16 years. 5 year is the limit applied to tax deals made by EU countries.
Apple Inc. (NASDAQ:AAPL) is not the only international company facing these allegations and investigations. EU is also looking into deals made between Netherlands and Starbucks and Fiat and Luxembourg.