The European Commission (EC) has ordered Apple to pay back Ireland up to 13 billion euros (US$14.52 billion) in taxes.
The US Treasury warned that the move risks damaging “the important spirit of economic partnership between the US and the EU”, and Ireland has said it will appeal against the decision.
Over the years, Apple has paid a tax rate on its European profits as low as 0.005 percent over, according to the three-year EC investigation.
The US tech giant pays just 5 euros tax on every 100,000 euro profit.
By contrast, big companies pay an average tax rate of 28 percent in the European Union and they need to pay 28,000 euros tax on each 100,000 euro profit, or 5,600 times Apple’s tax bill.
The investigation found that Apple reached an extraordinary tax deal with Ireland, where the company’s European headquarters is located.
Apple booked all the profits on the sale of the iPhone and other Apple products in Europe, the Middle East, Africa and India in Ireland.
Ireland has long been a tax haven. Its corporate tax rate is only 12.5 percent.
Ireland gave Apple a sweetheart tax ruling decades ago which allowed the company to pay a tax rate of 2 percent.
Also, Apple enjoys various tax deductions from its R&D, labor and environmental protection spending.
The EC accused Apple of unfairly exploiting its tax advantage in Europe.
It required Apple to pay 13 billion euros in back taxes to Ireland.
The tax ruling represents 5 percent of Ireland’s GDP and it will help ease the Irish government’s 200 billion euro debt.
Ireland plans to appeal against the ruling.
A number of leading tech firms such as Facebook, Google, Yahoo, Twitter, Uber, eBay, Dropbox and Airbnb have followed Apple’s example.
They have their European headquarters in Ireland for the tax benefits while providing tens of thousands of jobs.
Ireland might lose its attraction as a tax haven if it accepts the EU ruling.
The US is stepping up efforts to oppose the ruling. The US Treasury Department said the Brussels-based commission is taking on the role of a “supranational tax authority” that has the scope to threaten global tax reform deals.
US President Barack Obama said the move set an “unfortunate precedent”.
This article appeared in the Hong Kong Economic Journal on Sept. 5
Translation by Julie Zhu
[Chinese version 中文版]
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