Following a recent E.U. ruling, Apple is expected to pay Ireland back taxes. But the tech giant said Tuesday that it can deliver either taxes or jobs, not both.
Shortly after the ruling, the iPhone company said the huge Irish tax bill will have a “profound and harmful effect” on jobs across Europe. Although, Apple did not resort to any direct threats, some politicians felt like being threatened. Especially those who seek to attract more businesses to their states.
Twenty-five years ago, Apple and Ireland closed a tax deal that was legal under the Irish law. Under the agreement, Ireland pledged to apply preferential tax rates on the U.S. company. In return, Apple agreed to run its European operations from Ireland.
In the meantime, the tech giant gave thousands of people a place to work. According to a last year’s report, Apple has 5,000 workers in Ireland. But it plans to create 1,000 more jobs in Cork. and an extra 200 jobs near Anthery.
In other words, the Irish government lowered taxes for the sake of jobs. And since the U.S. company is the biggest tax-payer in the country, if Apple wants, Apple gets. But the tech firm argued before the European Commission that all previous tax arrangements had the approval of Ireland’s regulators.
And the commission once did agree that the tax breaks were perfectly legal. However, competition commissioner Margrethe Vestager now thinks otherwise.
The Commission’s Findings
Vestager noted that Apple’s initial tax rate was 1 percent, but that tax rate sank even further to 0.005 percent in 2014. Moreover, the company created a phony head office on paper.
According to Vestager’s ruling, no employee worked in that ‘head office, and there was not enough operating capacity to run any type of operations from there. And last but not least on Ms. Vestager’s list is the fact that the Apple-Ireland agreements deprived other E.U. states of billions of euros in unpaid taxes. In other words, money that was supposed to stay in Europe landed in the U.S.A.
Vestager detailed how Apple managed to funnel tax money back to its home country. According to the ruling, Apple Operations Europe and Apple Sales International, two Ireland-based operations, had a secret cost-sharing agreement with the mother company in the U.S.
Under that agreement, the two Irish subsidiaries agreed to fund research and development conducted in the U.S. on behalf of the two Irish companies. In return, Apple allowed AOE and ASI to use the resulting intellectual property.
In the U.S., Apple usually dodges corporation taxes because it reinvests international revenue in the foreign states that allowed it to earn that revenue. According to the company’s annual report, the international revenue will be reinvested entirely in overseas operations.
The latest EU Commission could become a reason of concern for other corporations that put their bases in Europe to benefit from its flexible tax arrangements. Last fall, the European Commission accused Starbucks and Fiat of resorting to similar practices in the Netherlands. The commission is currently probing McDonald’s and Amazon too.
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