8/30/2016

AppleOwes$14.5BillioninBackTaxestoIreland,E.U.SaysTheNewYorkTimes

http://nyti.ms/2c4Pxyu

TECHNOLOGY

AppleOwes$14.5BillioninBackTaxesto
Ireland,E.U.Says
ByJAMESKANTERandMARKSCOTT

AUG.30,2016

TheEuropeanUniononTuesdayorderedIrelandtocollect$14.5billioninunpaid
taxesfromApple,arecordpenaltythatworsenedtensionswiththeUnitedStates
overtheblocscrackdownonsweetheartdealswithglobalmultinationals.
EuropescompetitionenforcersaidthatApplesillegaldealswiththeIrish
governmentallowedthetechnologygianttopayvirtuallynothingonitsEuropean
businessinsomeyears.ThearrangementsenabledAppletofunnelprofitfromtwo
Irishsubsidiariestoaheadofficewithnoemployees,nopremises,noreal
activities,thecommissionsaid.
Bydoingso,Applepaidonly50eurosintaxesforeverymillioneurosinprofit
during2014.Aspartofitsruling,EuropedemandedthatIrelandrecoup10years
worthofbacktaxes,some13billioneuros,orabout$14.5billion,plusinterest.
TheamountisadropinthebucketforApple,whichhasatotalcashpileofmore
than$230billion.Evenso,thecompanydescribedtheorderasadevastatingblow
totheruleoflaw.TheUnitedStatesTreasuryDepartmentsaiditjeopardizedthe
importantspiritofeconomicpartnershipbetweentheU.S.andtheE.U.
Sincetakingoverascompetitioncommissioner,MargretheVestager,hasmade
taxavoidanceacentralfocus,acampaignthathasalsoensnaredStarbucksinthe
Netherlands,AmazoninLuxembourgandAnheuserBuschInBevinBelgium.The
UnitedStatesTreasury,oneofthemostvocalcriticsofthesemoves,hassaidthat

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AppleOwes$14.5BillioninBackTaxestoIreland,E.U.SaysTheNewYorkTimes

Europeisoversteppingitspower,unfairlytargetingAmericancompaniesand
hurtingglobaleffortstocurtailtaxavoidance.
TheUnitedStatesgovernmentisanunlikelyadvocate.Politicianshaveberated
Appleforpayingtoolittlebysettingupcomplexandopaquetaxstructures.Officials
havehitbackagainstcorporatemergersthatallowedcompaniestomovetheir
headquarterstoplaceslikeIrelandtotakeadvantageoflowertaxrates.
ButthepositioningintheApplecasereflectsapoliticaltugofwaroverbig
profitablecompanies,theirpotentialtaxbountyandtherightstoregulatethem.
U.S.companiesarethegrandmastersoftaxavoidance,saidEdwardD.
Kleinbard,professorattheGouldSchoolofLawattheUniversityofSouthern
CaliforniaandaformerchiefofstafftothecongressionalJointCommitteeon
Taxation.
Nevertheless,becauseofthenatureofU.S.politics,hesaid,theApplecase
willbeframedbytheU.S.asEuropeoverreachinganddiscriminatingagainstour
team.
Sinceearlythisyear,Ms.VestagerandJacobJ.Lew,theUnitedStatesTreasury
secretary,andtheirteamshavemetregularlytodiscussEuropesstateaidtax
investigations.Mr.LewvisitedBrusselsinJulytoputforwardtheAmerican
perspective.
Lastweek,theTreasuryDepartmentreleasedareportcriticizinganymovesto
recoupbacktaxesfromAmericancompanies.Politiciansalsochimedinafterthe
Appledecision.
SenatorChuckSchumer,DemocratofNewYork,calleditacheapmoneygrab
bytheEuropeanCommission,targetingU.S.businessesandtheU.S.taxbase.The
SenateFinanceCommitteechairman,OrrinG.Hatch,saidthatthedecision
encroachesonU.S.taxjurisdiction.
AppleandIrelandhadsimilardefenses.

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AppleOwes$14.5BillioninBackTaxestoIreland,E.U.SaysTheNewYorkTimes

TimothyD.Cook,thechiefexecutiveofthetechnologycompany,saidthat
Europesrulinghadnobasisinfactorinlaw,andcalleditanefforttorewrite
AppleshistoryinEurope,ignoreIrelandstaxlawsandupendtheinternationaltax
systemintheprocess.Thecompanycalledtheeffectivetaxrateacompletely
madeupnumber.
TheFinanceMinistryofIrelandsaidthatthecommissionsdecisionwould
undermineacontinuingglobaltaxoverhaulandcreatebusinessuncertainty.The
ministrysaidthattaxeswereafundamentalmatterofsovereignty.
IrelandandApplebothsaidtheyintendedtofightEuropesdecision,even
thoughanyappealsprocesscouldtakeyears.
ThecommissionsaidtheamountdueinIrelandcouldbereducedifthe
AmericanauthoritiesdecidedthatAppleshouldhavepaidmoretaxintheUnited
States.OthercountriesintheEuropeanUnioncouldalsopotentiallytakeashare.
Theultimategoalshouldofcoursebethatallcompanies,bigorsmall,paytax
wheretheygeneratetheirprofits,thecompetitioncommissioner,Ms.Vestager,said
atanewsconferenceinBrusselsonTuesday.Weneedachangeincorporate
philosophiesandtherightlegislationtoaddressloopholesandensure
transparency.
AlthoughtheUnitedStatesappearstosidewithAppleandIrelandinthis
specificfight,theoverallviewisabitmorecomplicated.
AUnitedStatesSenatecommitteesaidin2013thatApplehadnegotiateda
specialcorporatetaxrateof2percentorlessinIreland.Whilethecommitteedidnot
accuseAppleofbreakinganylaws,lawmakerscriticizedthegimmicks,schemes
andcomplexcorporatestructuresthatallowedthecompanytosidesteptaxes.The
publicscrutinyandtheemergenceofpreviouslyconfidentialinformationabout
Applestaxarrangements,inpart,helpedsparkEuropesowninvestigationintothe
issue.
Appleandothercompanieshavealsofacedcriticismforkeepinglargereserves
ofcashoverseas.Themoneyisnottaxedathomeuntilitisbroughtbacktothe

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AppleOwes$14.5BillioninBackTaxestoIreland,E.U.SaysTheNewYorkTimes

parentcompanyintheUnitedStates.
NonfinancialAmericancompaniesholdacombined$1.7trillionincash
overseas,accordingtothecreditratingagencyMoodys.Justtheinternationalpiece
ofApplesstashamountstonearly$215billion.
Irelandhasfacedbroadscrutinyforitstaxappeal.
InamatterseparatefromtheApplecase,theUnitedStatesTreasuryhastaken
aggressivestepstocurtailsocalledinversions,ataxmovethathassignificantly
benefitedIreland.Underthosemergerdeals,anAmericancompanywouldbuyan
overseascounterpartandshiftitsheadquartersoverseastoloweritstaxes.
Ireland,withitslowcorporatetaxrate,hasbeenanespeciallybigwinnerwith
inversions.Suchfinancialmaneuvershelpedplumpupthecountryseconomy,
whichgrewatabreakneck26.3percentlastyear.
Irelandscorporatetaxrate,at12.5percent,isoneofthelowestinthedeveloped
world.Otherincentivesandbreaksallowcompaniestocuttheirbillsevenfurther.
Whileitisphasingoutsomeofthemorecontestedloopholes,Irelandhasjust
introducedanewbreakforprofitonintellectualproperty,apotentiallyhugebenefit
tolargetechnologycompanieswithtrovesofpatents.
ManymemberstatesarenotunhappyabouttheEuropeanCommissions
investigations,saidPhilippWerner,acompetitionlawyeratJonesDayinBrussels.
Theymayhelptoclosedowntaxhavens.

2016TheNewYorkTimesCompany

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