The Apple Corporation was asked by European Commission to pay a record breaking tax and penalty of $13 billion as the EU Commision has found that its tax arrangement in Ireland is illegal. Both Ireland and Apple opposed the penalty and said that they will go for review petition.
Apple had paid only negligible tax out of its profits from European sales. The sales in the EU were sourced through Ireland and given the tax arrangement called Double Irish, Apple was able to pay only 0.005% for considerable years.
The Commission said Irish tax arrangement with Apple between 1991 and 2015 had allowed the US company to source its European sales to a “head office” that existed on paper only and could not have generated such profits.
European Competition Commissioner Margrethe Vestager said that member states cannot give tax benefits to selected companies and it is violation of EU state aid rules.
Apple set up their sales operations in Europe in such a way that customers were contractually buying products from Apple Sales International in Ireland rather than from the shops that physically sold products directly to the customers. In this way, Apple recorded all sales, and the profits from these sales, directly in Ireland.
“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.”
The tax verdict leaves very important implications on other fronts especially in the trade and economic relationship between US and EU and that between Ireland and the EU.
European countries were alleging that the US is supporting and promoting tax avoidance practices by its MNCs in Europe. There were several such tax avoidance practices invented by US companies like the double Irish with a Dutch sandwich that led to tax revenue loss for Europe.