Apple Ordered by EU To Pay $14 Billion in Back Taxes

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Technology firm Apple has been ordered to repay taxes after the European Commission said it was illegal for Ireland to give the company huge tax breaks. The ruling has prompted Ireland to signal it will appeal the decision. The European Union has previously called Apple’s Irish tax deal illegal, but a ruling Tuesday by EU competition officials could force Apple to pay $14.5 billion in back taxes. Apple was able to legally funnel its international sales revenue through Ireland in order to lower its tax payments. However, the commission ruled that European law makes it illegal for a company to receive state tax aid, and would require Apple to pay back Ireland for the tax breaks it received. European Competition Commissioner Margrethe Vestager said that Apple illegally benefited from a tax deal with Ireland that no other business received. “Member states cannot give tax benefits to selected companies – this is illegal under EU state aid rules,” she said in a statement. “The commission's investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years. The commission, in a statement, said the tax breaks received by Apple allowed the company to avoid paying taxes on almost all profits it made from sales within the EU. Apple’s took all of its profits from European sales and recorded them in Ireland. From there, the vast majority of Apple’s European profits were allocated to a “head office” within the company that had no physical presence or employees in any country. Only a small fraction of Apple’s profits were allocated to its “Irish branch” so only those profits were taxed by Ireland. That allowed Apple to pay just over $11 million in corporate taxes in 2011 – an effective tax rate of less than one percent. In the following years, Apple’s profits continued to increase, but its tax payments continued to decrease. The European Commission ruling marks Europe’s largest-ever tax penalty – though Irish Finance Minister Michael Noonan immediately indicated that the country will appeal the ruling. "The decision leaves me with no choice but to seek cabinet approval to appeal the decision before the European Courts," Noonan said in a statement. "This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules. Last month, the U.S. treasury department criticized the European Commission, accusing it of unfairly singling out U.S. companies for punishment under its “new approach” to dealing with legal tax breaks given to multinational corporations operating within its member states. The commission shot back last week, denying that it is targeting U.S. businesses, and instead said that EU rules ban member states from offering tax breaks that are not available in other European countries. "This is a standard feature of EU state aid rules," the commission said in a statement.

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