5 things you need to know about EU’s hefty tax bill for Apple

30 Aug 2016

5 things to know about the EU tax bill for Ireland

This morning (30 August), the European Commission hit Apple with a record €13bn tax bill. Here are the key details you need to know.

The ruling is in and Competition Commissioner Margrethe Vestager has declared that Apple benefited illegally in Ireland to the tune of €13bn.

Both Apple and the Irish Government had vehemently denied there had been any special agreement regarding Apple’s tax affairs in Ireland.

However, the EU has been doggedly pursuing a case that Apple benefited well beyond Ireland’s 12.5pc corporate tax rate, a rate jealously eyed by other economies in Europe.

Estimates on the hefty tax bill that EU Commissioner for Competition Margrethe Vestager could have applied ranged from €1bn up to €19bn. Ireland had been hoping for a figure in the hundreds of millions, or at least in the low billions, with the true figure of €13bn vastly exceeding that.

1. The back tax that the European Commission is demanding Apple pay will be anything but a windfall for Ireland

Had the amount of back tax deemed payable by the Commission run to hundreds of millions of euro, as the Irish Government had optimistically anticipated, then the money could have been put into the Exchequer for vital public projects.

However, under complex rules, if the value exceeds €1bn then under these rules it must be used to pay Ireland’s national debt – a perverse exercise when you consider it was the European Union that decided to unjustly saddle Ireland with 42pc of Europe’s banking debt. This makes any so-called windfall just a drop in the ocean.

2. Apple will stay in Ireland regardless of the outcome

Apple CEO Tim Cook has said before that any decision made by the EU in relation to its tax affairs will not affect its operations in Ireland, where it employs 5,000 people with plans to hire 1,000 more.

Apple considers Ireland to be one of its main overseas bases and the operation has been active in Cork since 1980 when Apple was then just a mere start-up led by a former hippy called Steve Jobs.

The operation has evolved over the years from pure manufacturing of Mac computers to today, where some manufacturing remains but operations are centred on the “business” of Apple in terms of legal, e-commerce, supply chain management and much more.

In fact, Apple recently received planning permission to proceed with the construction of a €850m renewable-energy-powered data centre in Athenry, close to Ireland’s west coast.

3. Apple’s trial and punishment is the latest phase in a global firefight over corporates and where and how they pay their taxes

The European Commission investigation into Apple’s tax affairs in Ireland is part of a wider, global war over corporate citizenship and where multinationals pay their taxes.

In the past year, the Commission has probed several companies over their tax arrangements in Europe, including Google, McDonald’s, Starbucks and Ikea, and it is keen to make examples.

In recent months, French authorities raided Google’s Paris offices over allegations the internet giant was involved in tax fraud and money laundering.

Apple is likely to reject the finding and the US government is also likely to wade into the battle to support Apple and Ireland.

4. Is this the end of the matter?

No. The decision today by the European Commission will be just the first part of a long-running saga. Both Apple and the Irish Government are likely to appeal Commissioner Vestager’s decision.

This appeal is likely to be brought to the EU General Court with the aim of annulling Vestager’s decision.

Failing that, the Irish Government can then appeal to the EU Court of Justice on the matter.

All in all, this saga could run on for five or more years.

5. What will this mean for Ireland?

Ireland’s low corporate tax rate of 12.5pc has long been a bone of contention for European countries that wish to compete against the country for valuable inward investment projects.

However, because of the country’s diminutive size, its location on the periphery of Europe and insignificant industrial base relative to the industrial heartlands of Germany, Italy or France, Ireland has had to play to every strength it can muster over the last 30 or 40 years. And it has done this very well, in fact, too well.

The corporate tax rate, alongside a young, well-educated, English-speaking population, has served Ireland well, enabling it to land key inward investment projects. Every country in Europe wants Facebook or Google.

Now that the EU has gotten its pound of flesh out of Apple, with the scent of blood in its nostrils, it could set its sights on Ireland’s vital corporate tax rate.

Apple Berlin image via Shutterstock

Update: This article was updated at 11.30am on 30 August 2016 following the announcement of the EU’s ruling.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years