A $14.5 billion dilemma- EU serves tax order to Apple

With Ireland unwilling to accept $14.5 bn tax and the intervention of US govt, it seems European Commission has bitten off more than it can chew

European Commission ordered tech behemoth Apple Inc to pay a record $14.5 billion unpaid tax to Ireland, terming it as an illegal state aid. The news in itself did not create shock waves as much as the response of Ireland did. Ireland does not want the money.  

A few pertinent question here are, what led the European Commission to order such a massive tax payment and why is Ireland not willing to take the money. Let's try to understand it step by step.

In his open letter, Apple CEO Tim Cook said that late Steve Jobs saw an opportunity in Ireland and opened Apple's first factory in Cork, Ireland with 60 employees. There are two companies in Ireland — Apple Sales International and Apple Operations Europe. Now, European Commission says, these companies had no employees or real offices yet realised large profits, according to a report in Business Insider. Contrary to this, Tim Cook's letter states that there are over 6,000 employees across Ireland. 

 

Ireland extended an olive branch to Apple way back in 1991 and again in 2007. Ireland and Apple struck a deal which let Apple pay bare minimum taxes in exchange of generating jobs for the Irish people. Plain and simple. The tricky part is the amount of tax. Ireland already charges least percentage of tax in all Europe — a paltry 12.5% — reports the Fortune.

That's not it. In 2003, Apple payed 1% of the profits it made in Europe, which came down to 0.005% in 2014, with which Ireland is totally fine. It simply does not want Apple to even pay the standard 12.5% tax. So if sales are made in entire Europe, how does Apple pay so less? Apple attributed all the European sales to the two companies it set up in Steve Job's era — Apple Sales International and Apple Operations Europe. 

European Union's Competition commissioner Margrethe Vestager has very vocally stated that it is not a fair way to play. This is like a state subsidy given by a country to a company. Ireland on the other hand is very comfortable with the special treatment it is providing to Apple. The logic given by Ireland for the unwillingness to collect taxes is that it would not just hurt Apple but would hurt other companies operating in Ireland. If Ireland starts collecting tax at higher rates then it might lose it's reputation of inexpensive place to run business.

The US government has expressed its concern over the issue. The Treasury Department says if the Commission wins this case, US companies could use these taxes paid in Europe to offset US taxes. That, it says, would effectively constitute a transfer of revenue to the EU from the US government and its taxpayers, reports Business Insider.

The road ahead? Apple will appeal against the tax order, so will Ireland. US government is ought to intervene. The process might slow down and European Commission will have to wait and watch.