October 28, 2016

Apple’s Irish Tax Bill May Run Into Billions of Euros

Apple Inc. is facing a potential tax bill running into billions of euros, with the European Union poised to release a finding into the company’s dealings in Ireland as soon as Tuesday, according to people familiar with the situation.

The European Commission decision is expected to say Ireland provided the iPhone maker with illegal aid through a sweetheart deal in return for creating jobs in the nation, the people said on condition of anonymity because the details are confidential. Ireland has vowed to fight any adverse finding.

Such a ruling might heighten tensions between Europe and the U.S. over taxation policies, with the U.S. having already complained that Europe is unfairly targeting American companies and threatening global tax reforms.

In preliminary findings in 2014, European competition authorities said Apple’s tax arrangements were improperly designed to give the company a financial boost. There’s a range of estimates on how much Apple might have to pay. In a worst-case scenario, Apple may face a $19 billion bill if the government ultimately loses and is forced to recoup tax from the company, according to JPMorgan Chase & Co. analyst Rod Hall. The Irish Times reported earlier on Monday that the figure might not be much more than 100 million euros ($112 million), although it later revised its estimate upwards.

The European Commission declined to comment on a decision that’s still pending or on the timing of its announcement.

Apple said it had nothing to add to previous statements rejecting suggestions it received selective treatment from Irish officials. The ministry declined to comment.

Two Rulings

“A state aid ruling against Ireland is likely to bring the country’s corporation tax regime back into focus,” said Dermot O’Leary, an economist at Goodbody Stockbrokers in Dublin. “However, the commission investigation relates to two rulings given to Apple in 1991 and 2007. So, a critical issue will be how the final decision relates to the current Irish tax code or to previously amended policy.”

The commission in January ordered Belgium to recover about 700 million euros in illegal tax breaks from at least 35 companies, including Anheuser-Busch InBev NV and BP Plc. And last year, for example, Starbucks Corp. was ordered to pay 30 million euros in back taxes to the Dutch government.

As of last month, Apple had $232 billion in cash, with about $214 billion of that being held overseas.

The U.S. Treasury Department has pushed back hard against the state aid probes, most recently with an unusual white paper that said the Brussels-based commission had overextended its legal authority and threatened global tax reforms.

U.S. Response

“The United States is committed to tax fairness,” White House Press Secretary Josh Earnest said Monday. “We want to make sure the kinds of agreements we reach with other countries are not manipulated to allow companies to shirk responsibilities.”

Still, the Commission-ordered repayments could wind up costing American taxpayers under U.S. tax law, and benefit EU taxpayers, the U.S. has said. That’s because multinational corporations with large foreign operations, like Apple, are allowed to claim a credit against their U.S. tax bills for any foreign taxes paid, an offset that reduces their tax payments to U.S. coffers.

Treasury Secretary Jacob J. Lew first raised formal objections to the probes in a letter last February to top EC and EU officials, emphasizing so-called unfair targeting of U.S. companies — a charge that European regulators deny — and a potential damping effect on direct foreign investment.

Robert Stack, the Treasury’s top official for international tax affairs, underscored in a blog post that accompanied last week’s white paper one of the department’s biggest objections to the probes: that EU regulators were changing the rules of the game without prior warning. Calling the probes “new” and “unforeseeable,” Stack wrote that regulators “should not seek to impose recoveries under this new approach in a retroactive manner because it sets a bad precedent for tax policymakers around the world.”

U.S. Treasury officials declined to comment on Monday.

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