Ireland has granted Apple illegal tax benefits for years, enabling Cupertino to pay "substantially less tax than other businesses," the European Commission announced Tuesday.
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Altogether, Ireland has afforded Apple "undue tax benefits" of €13 billion ($14.5 billion) — a violation of EU state aid rules. Now, Ireland "must recover" those back taxes from Apple, plus interest.
In 2003, Apple paid a 1 percent corporate tax rate on its European profits. Thanks to Ireland's "special treatment," the iPhone maker's tax rate dropped to just 0.005 percent by 2014, according to EU Commissioner Margrethe Vestager, who leads competition policy.
"Member States cannot give tax benefits to selected companies — this is illegal under EU state aid rules," Vestager says.
The EU's investigation, first launched in June 2014, concluded that two tax rulings in Ireland have "substantially and artificially lowered" the amount of tax Apple has paid in the country since 1991.
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"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 explains. "These 'head offices' existed only on paper and could not have generated such profits."
Further, "profits allocated to these 'head offices' were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force."
The Commission went on to say that Apple essentially recorded all its EU sales in Ireland, rather than the countries where the products actually sold. This enabled Apple to "avoid taxation on almost all profits generated by sales of Apple products in the entire EU." For more, check out the infographic above.
The Commission can order recovery of back taxes for a 10-year period preceding its first request for information in 2013, meaning Apple now owes unpaid taxes for the years 2003 to 2014, amounting to the €13 billion.
We've reached out to Apple for comment, and will update if it responds.
Apple's tax practices attracted Congressional attention here in the US. The company's top brass in 2013 faced off against a Senate panel about practices that members of Congress claim has robbed the US Treasury of billions in revenue.