Apple may owe up to $8 billion in back taxes from its use of potentially illegal tax shelters in this country.
And if Ireland is found to have traded a special tax deal with Apple, in exchange for a pledge to create jobs here, it could be forced to recoup the billions of euros in back taxes.
The European commission recently ruled that Starbucks owes Dutch authorities over $22m in unpaid taxes. What this means is that 35 companies across the EU now owe the equivalent of $760m in back taxes. It’s all part of the EU crackdown on tax breaks for multinational corporations and this decision gives a strong indication that the tech giant could be subject to a hefty bill when the open investigation against its activities in this country concludes.
Since 2014, European regulators have been investigating Apple along with a number of other American companies they believe could be exploiting tax laws in Ireland and other countries, sheltering profits there in order to reduce how much they owe the IRS in the U.S.
The European Commission is weighing whether to levy a higher tax rate on Apple, which could allow it to collect more than $8 billion in back taxes, according to Bloomberg Intelligence‘s calculation. Such a decision, which the report said could happen in March, would mean that Apple’s tax bill would be as much as homebuilder D.R. Horton (No. 354 on the Fortune 500) makes in revenue per year.
The majority of Apple’s revenue, which was $182.8 billion last year, comes from abroad with a foreign tax rate of around 1.8%, Bloomberg said. The ruling could raise that rate to 12.5%.
The company has $205.7 billion in cash on hand, so $8 billion would represent a hit of less than 4%.
While Apple generates about 55 percent of its revenue outside the USA, its foreign tax rate is about 1.8 percent.
Apple has already said it would appeal against a ruling against the company. In December CEO Tim Cook called the investigation “political crap” in a TV interview. “There is no truth behind it,” he said. “Apple pays every tax dollar we owe.”
Apple probably wouldn’t be the direct recipient of a fine in any case, some have argued, since the subject of the investigation is the government of Ireland. But given the state of the Irish economy, especially its national debt, the government would presumably try to recover money from Apple.
This is not the first time Apple has been investigated for its accounting practices in Ireland. Executives including Cook appeared before the US Senate in 2013 to testify about whether it had renegotiated Ireland’s 12.5% corporate tax rate down to 2%.
The European commission extended the Apple investigation in December, making it less likely that a judgment from the regulator could come in time to affect the Irish election.
Apple are taking the decision so seriously that CEO Cook met with the European Commission’s antitrust chief Margarethe Vestager in Brussels on yesterday to argue the company’s case. After the meeting, Cook sent out a tweet highlighting figures showing that the company’s products support more than 1.4 million jobs across Europe. Meanwhile, government officials on both sides of the Atlantic have come to the company’s defense to lobby against a penalty.
Enda Kenny has also defended Ireland’s relationship with Apple yesterday calling the claims the country is a tax haven “false and baseless.” A decision may come as soon as March, though regulators are still seeking information on the case, which could mean it will take longer.
Apple isn’t the only US company being investigated. US companies facing scrutiny from officials in Europe include Starbucks, Amazon and McDonalds.