In 2016 Apple was ordered to pay 13 billion euros as unpaid taxes and 1.2 billion more as an interest to Ireland. But a few days back, the European Union’s 2nd highest court annulled the case. It ruled out that the commission had failed to prove that the Irish Government had given Apple a tax advantage.
Phew! A major breather for Apple who has been forced repeatedly to defend its tax practices for a long time. Although it pays out tens of billions of dollars in taxes, it practically paid ‘nothing’ as taxes in Ireland.
Europe’s competition commissioner Margrethe Vestager is at the center of Apple’s current tax-row. She’s been called ‘your tax lady’ by Donald Trump and is Silicon Valley’s worst nightmare. Apple and Ireland have engaged in what she has termed as the ‘sweetheart deal’. It all started in 1980 when Steve Jobs began operations in Ireland. The country offered Apple a deal to operate basically tax-free if it set up its European headquarters on the island. Steve Jobs announced that he would bring in £7 million and create 700 jobs for Ireland. Today there are 6000 employees in Ireland working for Apple.
Ireland continued to allow Apple to operate even after the European Economy Community made it mandatory to accept taxes from companies arriving. In 1991, the first ‘sweetheart deal’ was made between Ireland and Apple. Apple established operations under two subsidiaries ‘Apple Operations Europe’ and ‘Apple Sales International’. Profits from India, Africa, The Gulf, and Europe were made under these subsidiaries. For example, the profit from an iPhone sold in India was recorded by these subsidiaries in Ireland. A special deal with Ireland allowed Apple to pay 50 cents for every 1 million of profit.
The deal gave Apple a massive competitive advantage over its rivals. In 2007 a second deal was made. This was during the time the iPhone was first released. The company would only be taxed on a certain bracket of its earnings. This deal continued till 2015. But the EU had already opened a formal investigation into Apple’s tax deal with Ireland. In 2013, an investigation revealed that Apple had paid less than a 2% tax in Ireland for years. The Brussels HQ accused Apple of benefiting from something called ‘illegal state aid’.
In 2015 Apple had to change the residency of its Irish subsidiaries to comply with the changing tax laws. This subsequently led to Apple claiming an increase in tax payments in Ireland. This is where Margrethe Vestager enters the scene. She orders Ireland to claw back €13 billion worth of unpaid taxes.
Tim Cook retaliated by calling the ruling ‘total political crap’. He pledged to continue growing in Cork. In his defense, he said that the company had not received a ‘special deal’ and that it wasn’t ‘unique for Apple’. ‘It was their law.’ Cook and Ireland’s former finance minister Michael Noonan appealed the decision. By 2019, the Irish treasury backing Apple’s case reported over €7.1m in legal fees. The European Parliament had labeled it as a ‘tax-haven’. Its international tax laws had lured in more than 1000 FDI giants. The country’s reputation as ‘European HQ of major tech’ was on the line.
July 2020: The European competition watchdog suffered a crushing defeat. It failed to prove that ‘the Irish government had given the U.S. tech giant a tax advantage’. The lawyers went on to appeal that the tax imposition ‘defies reality and common sense’. Apple had won a major court battle over taxes at Europe’s second-highest tribunal. It no longer has to pay €13 billion to the European government.
The European Commission still has two months to decide if they want to appeal the latest ruling and potentially take it to the EU’s highest tribunal.
Now the question is, will they meet again…?