Apple stock is valued at $658 per share, possessing a total market value of 651.5 billion dollars. What if I told you that Apple paid 0.0005% corporate tax this year; in Ireland that is. On Tuesday, the European Union busted Apple for its practices by ordering Apple to repay as much as 13 billion euros ($14.5 billion) plus interest after the European Commission said Ireland illegally slashed the iPhone maker’s tax bill between 2003-2014. Some of you may be asking why does Apple have to pay 14.5 billion dollars to the UN if they are an American company? Well here's some context and a quick 411 on the situation at hand.
Apple is an American company, but they have had offices in Ireland for many years. Since most of Apple’s offices are “based” in Ireland this is where they have to pay taxes on their international profit. Normally, under the basic tax law, companies in Ireland must pay a signature tax of 12.5%, but recently the UN discovered that over the past decade Apple has been paying under 2%. In the most recent study they claimed Apple scapegoated with paying 0.0005%, which understandably angered and drew attention to UN officials. Essentially, the UN commissioned ruled that Ireland provided Apple illegal aid through a favorable tax arrangement, which is a violation of the European Union’s state-aid rules. EU Competition Commissioner Margrethe Vestager said, in an emailed statement, that member states of the EU cannot give tax benefits to selected companies. "This is illegal under EU state aid rules," she said. "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." This motivated the UN to hand out the largest tax penalty in history. This penalty is unlikely to hurt the pockets of the 651 billion dollar company.
After the release of the reports, Apple stock only dropped a mere 2 percent, and in the past few days they have already recovered a majority of their losses. In wake of the decision, Apple CEO Tim Curtis responded aggressively in a statement following the UN decision: "The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process. The commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money. It will have a profound and harmful effect on investment and job creation in Europe. Apple follows the law and pays all of the taxes we owe wherever we operate. We will appeal and we are confident the decision will be overturned.”
Ireland had mixed reaction; Irish Finance Minister Michael Noonan said: “I disagree profoundly with the commission’s decision." Ireland’s tax system is founded on the strict application of the law “without exception,” he said. Apple and the Irish government have both vowed to appeal the decision. You may be puzzled by the fact that the Ireland's officials are upset about the UN's decision despite receiving 14.5 billion dollars in the deal. Why does Ireland not want this money? First off, Ireland wants to ban off this deal in order to clear its name, because they claimed they did not do anything wrong in the first place. In addition, Ireland's attractiveness to multinationals thus decreasing its gain in foreign investments. The U.S. treasury stood behind the American proclaimed juggernaut: "We believe that retroactive tax assessments by the commission are unfair, contrary to well-established legal principles, and call into question the tax rules of individual Member States. The commission’s actions could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the U.S. and the EU. We will continue to monitor these cases as they progress, and we will continue to work with the commission toward our shared objective of preventing the erosion of our corporate tax bases.”
It should be interesting to see how the appeal process will go on moving forward. After the EU penalized Apple, I bet many multinationals will think twice before trying to go through loopholes in Europe to avoid high corporate taxes.