In late August, the European Commission ruled that Ireland must collect $14.5 billion in back taxes from Apple. The antitrust regulator for the European Union claimed that Ireland had given Apple an extremely favorable tax arrangement for over ten years allowing the tech giant to pay a tax of less than 1 percent. The EU further claimed that Apple had two companies in Ireland with a head office that existed only on paper, but received all of Apple’s European profits. The ruling fuels the debate about multinational corporate existence and tax responsibility worldwide.
Margrethe Vestager of the European Commission stated that the EU has a longstanding prohibition against states giving benefits and other advantages to a selected company which are not available to others. She cited that Apple paid an effective tax rate of .005 percent, which Apple’s chief executive, Tim Cook, emphatically denied; further claiming that Apple paid $400 million in taxes to Ireland in 2014.
Surprisingly, the Irish government joined Apple in vowing that it would appeal the award! Why? Ireland has rebounded from a 2010 banking crisis to become one of the fastest growing economies in Europe. For approximately the last thirty years, Ireland has lured foreign companies with low corporate taxes and other tax-avoidance measures. Thus, instead of celebrating the award, the country’s government is panicking as it sees its reputation as a tax haven for multinational companies in jeopardy.
More than 1,000 foreign companies, mostly of American origin, employ 100,000 people in Ireland, which is 5 percent of the Irish workforce, while generating more than 25 percent of Ireland’s economic output. These companies pay Ireland more than 2 billion euros annually in tax, while contributing 6 billion euros in salaries, 3 billion euros in infrastructure and research, and 4 billion euros for Irish goods and services. Thus, these foreign businesses have significantly helped lift Ireland from its past economic doldrums and now, with the EU’s ruling, Ireland sees that the golden goose may have a knife in its back.
Vestager claimed that Apple put its European profits in a sham headquarters which had no employees, activities or real physical location. These profits were neither taxed in Ireland nor anywhere else, the ramifications of which may greatly affect how multinational companies are treated in the future. Rumors have it that the EU has set its sights on Amazon and McDonalds next. Stay tuned!
If you are an individual or business in the New York, New Jersey, Connecticut, Tri-State area and have any question about taxes, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
