Reputational concerns mount for Apple following EU tax ruling

September 2, 2016

A poor understanding of complex cross-border fiscal and taxation policies can result in the possible violation of relevant laws. However, utilising complex cross-border arrangements to knowingly bypass taxes demonstrates a lack of integrity and poor business conduct that can ultimately have reputational consequences. Apple has effectively been accused by Brussels of doing just that following the news that it will be hit with Europe’s largest tax penalty for receiving illegal state aid from Ireland.

The United States technology company will learn on Tuesday the precise amount it needs to pay, but it is likely to run into billions of euros in back taxes.

Apple’s European operation is headquartered in Ireland, which has a corporate tax rate of only 12.5 percent. A three-year investigation by the European Commission (EC) has been determining whether a tax break given by Ireland to secure Apple’s investment in the country could be considered illegal state aid.

EC Commissioner Margrethe Vestager is expected to provide details of the ruling, which has called on Dublin to issue a new tax assessment on Apple. According to the Financial Times, the technology company paid a tax rate of less than one percent on its European sales.

The EC ruling is likely to irritate the United States government, which has previously accused Brussels of waging some kind of campaign against corporate success by United States-based organisations. For example, Amazon has been subject to a similar probe, while Starbucks was ordered to pay €30 million (US$33 million) to the government of the Netherlands.

Apple has always denied tax evasion claims and accusations of tax fraud by parking revenues in low-tax foreign countries. “We pay every tax dollar we owe,” said chief executive Tim Cook. The ruling comes at an awkward time for the firm, which is set to unveil its new iPhone 7 and the latest incarnation of its Apple Watch at an event in San Francisco on 7 September.

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