The EU has said a favorable tax deal with Ireland helped Apple skirt billion of euros in corporate taxes. Demands for repayment could escalate tension with Washington, which says the arrears in question belong to the US.
The European Union ordered Ireland to recover 13 billion euros ($14.3 billion) in back taxes from Apple on Tuesday after ruling the country's sweetheart tax deal with the US tech giant amounted to illegal state aid.
Under EU law, taxation is a national competence but member countries are forbidden from doing anything that would give businesses a leg up over their competition.
But that's exactly what Dublin did when it allowed Apple to channel profits worth tens of billions of dollars through Ireland in order to avoid paying corporate taxes, according to EU Competition Commissioner Margrethe Vestager.
"This selective treatment allowed Apple to pay an effective corporate tax rate of 1 percent on its European profits in 2003, down to 0.005 percent in 2014," Vestager said at a press conference in Brussels on Tuesday.
Her announcement came three years after launching an investigation into tax breaks awarded by Ireland to Apple, the world's most valuable corporation, which runs much of its global business through Irish-backed subsidiaries.
The entities in question are Apple Operations Europe and Apple Sales International. In return for help from the Irish government, Vestager said Apple had agreed to maintain some 5,000 jobs in the country.
The Commission's inquiry was the latest in a series of anti-trust cases against major American corporations, which have targeted the coffee chain Starbucks, fast food giant McDonald's and the online retailer Amazon.
Ever since the so-called LuxLeaks revelations of 2014, which exposed broad tax avoidance schemes between Luxembourg and multinational corporations, the EU has made taxation a top priority.
Last year, Vestager ordered the Netherlands to recover 30 million from Starbucks that she said was owed in back taxes. Similarly, the Italian automaker Fiat was called upon to repay 30 million euros to Luxembourg.
But those efforts have drawn scorn from Washington, which lashed out at the Commission's approach last week by saying attempts to make US corporations pay more taxes in Europe was "inconsistent" with EU-US tax treaties.
The way the US Treasury Secretary Jack Lew sees it, one reason American multinationals set up subsidiaries overseas is to avoid paying taxes at home. Thus, any money recovered from them belongs to the US government.
Lew outlined his position in a 26-page white paper that he published last week. He has also raised these concerns with Jean-Claude Juncker, the president of the European Commission.
Apple and Ireland will appeal
Apple's earnings last year totaled $18 billion, the most ever reported by a corporation. As of June this year, Apple had an accumulated fortune worth $231.5 billion in cash, cash equivalents and marketable securities - most of which were held in foreign subsidiaries.
Both Apple and the Irish government said they would appeal the order, which marks the largest ever bill of its kind.
"Our tax system is founded on the strict application of the law," said Irish Finance Minister Michael Noonan, who expressed his "profound" disagreement with the ruling by the EU executive.
In a statement, Apple said it merely "follows the law" and insisted it paid all required taxes wherever its operations were based.
cjc/uhe (Reuters, AFP, dpa)