EC orders Apple to pay €13 bn in taxes plus interest to Irish government over illegal profit routing

Apple has been ordered by the EU antitrust watchdog to pay up to €13 billion in taxes plus interest to the Irish government.

The EC ruled that a special scheme to route profits through Ireland was illegal state aid.

The massive amount, 40 times bigger than the previous known demand by the EC on a company in such a case, could be cut if other countries sought more tax themselves from the US tech giant, the EU executive said in a statement.

The commission said Apple paid tax rates on European profits on sales of its iPhone and other devices of between only 0.005 per cent in 2014 and 1 per cent in 2003. Apple and Ireland said they would appeal the decision.

"Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years," said competition commission Margrethe Vestager, whose crackdown on mainly US multinationals had drawn anger in Washington which accused Brussels of protectionism.

Online retailer Amazon.com Inc and hamburger group McDonald's Corp are facing probes in Luxembourg, while coffee chain Starbucks Corp had been ordered to pay up to €30 million to Netherlands.

A bill of €300 million this year for Swedish engineer Atlas Copco AB to pay Belgian tax is the current record and other companies that have been ordered to pay back taxes in Belgium, many of them European, had not disclosed figures.

Meanwhile, the EC said in press release, "The EC has concluded that Ireland granted undue tax benefits of up to €13 billion to Apple. This is illegal under EU state aid rules, because it allowed Apple to pay substantially less tax than other businesses. Ireland must now recover the illegal aid."

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

Following an in-depth state aid investigation launched in June 2014, the EC has concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991.

The rulings endorsed a way to establish the taxable profits for two Irish incorporated companies of the Apple group (Apple Sales International and Apple Operations Europe), which did not correspond to economic reality: almost all sales profits recorded by the two companies were internally attributed to a "head office".

The Commission's assessment showed that these "head offices" existed only on paper and could not have generated such profits.

These profits allocated to the "head offices" were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force. As a result of the allocation method endorsed in the tax rulings, Apple only paid an effective corporate tax rate that declined from 1 per cent in 2003 to 0.005 per cent in 2014 on the profits of Apple Sales International.

This selective tax treatment of Apple in Ireland is illegal under EU state aid rules, because it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules. The commission can order recovery of illegal state aid for a 10-year period preceding the commission's first request for information in 2013. Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest.