Crunch time for Apple in its fight against $15 billion EU tax order

Apple

Apple’s clash with EU regulators comes to a head today as Europe’s second-highest court rules on whether the company has to pay approximately $15 billion in Irish back taxes, a key part of the EU’s crackdown against sweetheart tax deals.

In its order four years ago, the European Commission noted that Apple benefited from illegal state aid via two Irish tax rulings that artificially reduced its tax burden for over two decades, to as low as 0.005% in the year of 2014.

Defeat for European Competition Commissioner Margrethe Vestager would undoubtedly weaken or delay cases pending against Ikea’s and Nike’s deals with the Netherlands, as well as Huhtamaki’s agreement with Luxembourg.

Vestager, who has made the tax crackdown a centrepiece of her time in office, saw the same court last year overturn her demand for Starbucks to pay up to 30 million euros in Dutch back taxes. In another case, the court also threw out her ruling against a Belgian tax scheme for 39 multinationals.

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The Apple dispute is seen by some analysts as a lose-lose situation for Ireland, which has appealed against the Commission’s order alongside the iPhone maker.

While 14 billion euros including interest, would go a long way to plugging the coronavirus-shaped hole in the state’s finances, Dublin is seeking to protect a low tax regime that has attracted 250,000 multinational employers.

POLITICS IN IRELAND

If Ireland’s appeal succeeds, the government will be ridiculed by opposition parties for not taking the cash, which could cover at least half of a budget deficit forecast to balloon to as much as 10% of GDP this year.

Should the Republic of Ireland lose, the government will be castigated by the same politicians for launching the appeal. A ruling in favour of the Commission could also raise questions about the application of Ireland’s tax code at a sensitive time, when new global rules for taxing digital giants are being debated.

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Defeat could also hurt the Republic of Ireland’s ability to attract foreign investment, although the promotional blitz undertaken after the Commission’s 2016 decision appears to have worked. The numbers employed by multinationals like Apple, Facebook and Google have grown by 25%, accounting for one in ten Irish workers.

With the United Kingdom having left the European Union and with plans on tax free “free ports” in the works, there is increased danger for the Irish being able to retain its current advantages in the tech sector. Indeed, some commentators see the strategic change beginning to take shape in the UK as being a significant threat to the competitiveness of the stagnating European Union economies.

For Apple, defeat would be a blow, but manageable given its cash holdings topped $190 billion at the end of its fiscal second quarter.

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The cases are T-778/16 Ireland v Commission and T-892/16 Apple Sales International and Apple Operations Europe v Commission. The defeated side can appeal on points of law to the EU Court of Justice, Europe’s highest court.

Initial reporting via our content partners at Thomson Reuters. Reporting by Foo Yun Chee. Editing by Mark Potter. Commenta by Rob Phillips

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