Europe to hit Apple with its 'largest tax penalty' ever

Tim Cook CongressGettyApple CEO Tim Cook.

One of the worst-case scenarios for Apple’s tax predicament looks as if it’s about to come true.

Margrethe Vestager, the EU’s competition commissioner, has distributed a 130-page judgment on Apple’s Ireland operations, the Financial Times reports, ahead of an official ruling on Apple’s tax structure expected on Tuesday.

The European Commission started to look into Apple’s Irish tax rate in 2014, so Tuesday’s decision will be the culmination of a three-year investigation.

The commission concluded that Apple received “illegal state aid” from Ireland — essentially a sweetheart deal that allowed the computer maker to unfairly reduce its tax bill in a way not available to other companies, according to the report.

The commission focused on how and where Apple lists its intellectual property for tax purposes, which is one of the major loopholes that critics claim tech companies use to funnel assets to low-tax countries.

The decision does not have a specific fine attached, but it is expected to be Europe’s largest tax penalty ever, according to the Financial Times, which pegs the amount at “billions of euro.” Vestager will reveal the commission’s estimate on Tuesday.

Previous estimates have pegged Apple’s liability over back taxes in Ireland at as much as $19 billion, but other estimates have it at under $1 billion.

Reuters reports that the commission will recommend that Ireland should recoup “over 1 billion euros” from Apple.

It is expected to be larger than the biggest EU penalty to date — 1.4 billion euros, levied against French energy group EDF in 2015.

Apple may have to restate its accounts in Ireland and issue new financial statements.

Last week, the US Treasury warned the EU that if it decided to claw back large amounts of tax from Apple, that it could create an “unfortunate precedent.”

Apple CEO Tim Cook has criticised the international tax system as “not good,” and has vowed to appeal the decision if he feels that Apple didn’t “get a fair hearing.”

“Let me explain what goes on with our international taxes. The money that’s in Ireland that he’s probably referring to is money that is subject to U.S. taxes. The tax law right now says we can keep that in Ireland or we can bring it back,” Cook told The Washington Post.

“It’s important for everyone to understand that the allegation made in the E.U. is that Ireland gave us a special deal. Ireland denies that,” Cook said. “The basic controversy at the root of this is, people really aren’t arguing that Apple should pay more taxes. They’re arguing about who they should be paid to. And so there’s a tug of war going on between the countries of how you allocate profits.”

Apple did not immediately respond to a request for comment.

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