By Sara Sjolin, MarketWatch
The European Union’s antitrust regulator on Tuesday ruled that Apple Inc.’s tax arrangement with Ireland breached state-aid rules, ordering the Irish government to recover as much as 13 billion euros ($14.5 billion) in taxes from the tech giant.
Competition commissioner Margrethe Vestager called the company’s tax deal with Ireland “illegal,” saying it enabled Apple /zigman2/quotes/202934861/composite AAPL -0.53% to pay “substantially less tax” than other businesses over many years.
“Member states cannot give tax benefits to selected companies — this is illegal under EU state aid rules,” she said in a statement on Tuesday .
“In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1% on its European profits in 2003, down to 0.005% in 2014,” she added.
Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest, the regulators said.
Apple shares were down nearly 1% on Tuesday.
The Cupertino, Calif.-based iPhone maker has previously said it received no special treatment in Ireland and that any revenue generated in the country should be taxed in the U.S., where Apple’s research and development is based.
Apple CEO Tim Cook said in a letter out on Tuesday morning that his company will appeal the ruling, adding he is “confident that the commission’s order will be reversed.”
“The commission’s move is unprecedented and it has serious, wide-reaching implications,” he said. “This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe.”
The EU’s antitrust investigation concluded that almost all Apple profits recorded by the company’s Irish incorporated entities were internally transferred to a so-called head office that existed only on paper. The profit transfer to the “head office” had no “factual or economic justification,” Vestager said.
“This ‘head office’ was not based in any country and did not have any employees or own premises,” the regulator said in the statement.
“Only a fraction of the profits of Apple Sales International were allocated to its Irish branch and subject to tax in Ireland. The remaining vast majority of profits were allocated to the ‘head office,’ where they remained untaxed,” it added.
Apple’s tax arrangement with Ireland also meant the company avoided taxation on almost all profits from sales of its products in the EU single market, as the sales were recorded in Ireland rather than in the country where the transaction took place, the commission said. But the regulators noted that this tax structure falls outside of state-aid control oversight.
The EU investigation of Apple goes back to 2014, when the commission opened a formal probe into the company’s tax practices in Ireland amid a sweeping inquiry into possible sweetheart tax deal between member states and large multinationals. The antitrust body accused Ireland of striking deals with the tech major in 1991 and 2007 that amounted to state aid, which is illegal under EU regulations.