EU orders Apple to pay Ireland up to €13bn in unpaid taxes

Apple has been ordered to pay up to €13bn (£11bn) in back taxes to Ireland after the European commission ruled that deals between Apple and the Irish tax authorities amounted to illegal state aid.

The commission said Ireland’s tax arrangements with Apple between 1991 and 2015 had allowed the US company to attribute sales to a “head office” that existed on paper only and could not have generated such profits.

The result was that Apple avoided tax on almost all profits from sales of its products across the EU’s single market by booking the profits in Ireland rather than the country in which the product was sold. The figure of €13bn is the equivalent of the annual budget for the Irish health service and campaigners are also calling for the windfall to be invested in public housing.

Ireland Apple unpaid taxes EU

The taxable profits of Apple Sales International and Apple Operations Europe did not correspond to economic reality, the commission said. Apple paid an effective tax rate of 1% in 2003 on profits of Apple Sales International. The rate dropped to 0.005% in 2014.

Margrethe Vestager, the European competition commissioner, 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.”

The €13bn, plus interest, to be recovered covers the 10 years before the commission first requested information in 2013. The commission said it was up to Ireland to collect the tax from Apple but the Irish government wants the ruling to be reversed because it wants to preserve its status as a low-tax base for overseas companies.

Ireland’s finance minister, Michael Noonan, said Dublin would appeal against the ruling.

He said: “The decision leaves me with no choice but to seek cabinet approval to appeal. This is necessary to defend the integrity of our tax system, to provide tax certainty to business and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation.”

A cabinet meeting will be held in Dublin on Wednesday to discuss the fallout from the ruling. At the heart of the Fine Gael-led administration’s objections is that it would cause Ireland “reputational damage” in the eyes of other mainly US multinationals thinking of establishing their European base in the Republic.

Apple iPhone 6s

Fine Gael, the main opposition party Fianna Fáil, and a host of independent deputies serving as ministers in the coalition government support the low-tax regime for multinationals because it has created hundreds of thousands of jobs.

Apple’s chief executive, Tim Cook, recently dismissed the investigation as “political crap” and promised to appeal if the commission ruled his company owed back taxes. Apple, which changed its tax arrangements with Ireland in 2015, should be able to pay the tax because it has more than $230bn (£176bn) stockpiled in cash and securities, mostly outside the US.

Richard Murphy, a tax campaigner and a professor in international political economy at City University in London, said: “This is a great day for the sovereignty of the EU’s nations when it comes to tax. They will now be able to choose their own tax policies knowing another state should not be consciously undermining them when doing so. The Irish state has for too long been committed to tax abuse, unfair competition and secrecy, all of which are designed to undermine fair competition and increase inequality.”

The commission has been examining Apple’s tax deals with Ireland for three years. The deals have allowed the US company to pay very little tax on income earned throughout Europe. The commission opened a formal inquiry in 2014after initial findings concluded that the arrangements amounted to state aid incompatible with the single market.