EU Set to Rule Apple Tax Deals With Ireland Illegal -- Update
30 August 2016 - 6:07AM
Dow Jones News
By Natalia Drozdiak, Viktoria Dendrinou and Sam Schechner
BRUSSELS -- The European Union's antitrust regulator is poised
to rule as soon as Tuesday that Apple Inc.'s tax arrangements with
Ireland have breached the bloc's state-aid rules, according to
people familiar with the matter.
The EU's decision is likely to aggravate trans-Atlantic tensions
over the bloc's investigations into tax deals brokered between U.S.
multinational corporations and European countries. Washington has
said the probes unfairly target American companies.
In its statement declaring the tax arrangements illegal, the
European Commission is expected to cite a figure range which Apple
needs to pay back to Ireland and will likely request that Irish
authorities to calculate the exact figure.
Analysts have said they expect the commission to require Apple
to pay back anywhere between $200 million and as much as $19
billion, depending on the EU's line of argument in its final
decision.
The European Commission's antitrust agency opened a formal probe
into Apple's tax arrangements more than two years ago, accusing
Ireland of striking deals with the U.S. tech company in 1991 and
2007 that amounted to state aid. The EU at the time suggested
Ireland had handed Apple the sweetheart deals in exchange for
bringing more jobs into the country.
Last week, the U.S. Treasury published a white paper sharply
criticizing the EU's tax investigations. In the paper, Washington
said it "continues to consider potential responses." U.S. lawmakers
have threatened to invoke an obscure section of the tax code that
allows retaliatory double taxation.
The case against Apple could become the biggest example yet in
the effort European officials have made to claw more taxes from the
world's biggest companies. Using structures based in countries
including Ireland and Luxembourg, the companies reap billions in
revenue but have little left in taxable profit.
The Apple case focuses specifically on what tax should be paid
by an Irish-registered company that pays little tax in the country
while pulling in billions of dollars in the sale of Apple gadgets
to Apple units in countries like Germany that operate on razor-thin
margins.
Apple Sales International buys the Apple products like iPhones
from contract manufacturers in China and resells them to retail
outlets, according to the letter the EU sent to the Irish
government. The unit had revenue of over $63.9 billion in fiscal
2012, according to a U.S. senate inquiry in 2013.
Ireland previously has said it was confident its tax
arrangements with Apple didn't breach EU rules, and it would defend
"all aspects" of the case vigorously, in court if necessary.
An Apple spokeswoman pointed to previous comments by company
executives contending that the company received no special
treatment and that the billions it brings in via the
Irish-registered unit aren't taxed there because that money is
subject to taxation in the U.S. if it is repatriated.
Even as the U.S. government has tried to crack down on tax
avoidance by its own multinationals, the Apple case is one where
the Treasury Department and American corporations have found
themselves on the same side.
That is partly because the U.S., unlike most other
industrialized nations, imposes a tax upon repatriation of foreign
profits. Any tax that Apple pays to Ireland as a result of the EU's
ruling could generate foreign tax credits that ultimately would
reduce the U.S. tax the Treasury could collect.
This could matter even if Apple never brings its profits home.
U.S. lawmakers have been discussing a mandatory one-time tax on
U.S. companies' stockpiled foreign profits, and that pool of cash
could be reduced if U.S. companies have to pay European nations
first.
Apple executives have said they would support reductions to
corporate tax rates that would encourage it and other multinational
firms to repatriate earnings.
Apple generated $41.73 billion in operating income outside the
Americas in the nine months ended June 27, and much of that income
likely moved through Ireland.
Last year, when describing $91.5 billion of foreign profits, the
company said that "substantially all" of it was generated in
Ireland and was subject to a 33% tax on repatriation, suggesting
that the company had paid a single-digit tax rate outside the
U.S.
As of June, Apple has $215 billion in cash and other liquid
investments in its non-U.S. subsidiaries, according to securities
filings
--Richard Rubin in Washington, D.C., contributed to this
article.
Write to Natalia Drozdiak at natalia.drozdiak@wsj.com, Viktoria
Dendrinou at viktoria.dendrinou@wsj.com and Sam Schechner at
sam.schechner@wsj.com
(END) Dow Jones Newswires
August 29, 2016 15:52 ET (19:52 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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