DUBLIN — When a country takes issue with the payment of tax, it is almost always because it wants more money, not less.
However, in a peculiarly Irish twist, the government in Dublin is to appeal a ruling by the European Commission’s powerful competition regulator that the tech giant Apple must pay the country a staggering $14.5 billion in back taxes.
The penalty is far and away the biggest fine the EU has ever imposed.
The European authorities ruled that the low tax rates the company has enjoyed in the country over the past 25 years—just 0.005 percent on European profits in 2014, according to the EU—have amounted to illegal state aid and must be paid forthwith.
The size of the penalty payment—which equates to 6.4 percent of Ireland’s national debt—finally emerged today at a news conference by EU Competition Commissioner Margrethe Vestager, after three years of argument and counter argument.
It stunned the government in Dublin, which had been quietly briefing that the fine was unlikely to top $1 billion.
The country’s political elite perceive the ruling to be a retaliatory strike on the country for its cherished 12.5 percent corporate tax rate, which has long infuriated fellow European nations, who have far higher business tax rates and see Dublin’s tax policy as lacking European solidarity.
Dublin views the low corporate tax rate as key to its strengthening recovery from a crippling recession caused by a collapse in the property market in 2007 that resulted in the $71 billion bank bailout.
Apple paid the negligible rate of tax due to two special tax “opinions” given to the company in 1991 and 2007 by Irish authorities. These opinions are at the core of the argument—the EU claims they were available only to Apple, Ireland argues that they applied to all Irish registered companies.
The low tax deal with Apple has helped to turn large swathes of Dublin into a hotbed of tech firms and startups; Google, Facebook, Airbnb, and Paypal are all residents of the until recently-derelict riverside area now known as Silicon Dock.
Ministers are briefing that Ireland will appeal the ruling, that Apple received no state aid and that the company does not owe the country a red cent.
The Irish finance minister Michael Noonan said in a statement there was “no choice” but to appeal the decision.
“This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation,” he said.
If Apple is forced to pay the tax, the payment would be treated as a windfall gain and the government will be required to use it to pay down the national debt, which stands at over $200 billion in large part due to the banking bailout.
Critics have calculated that 2008’s monster bank bailout cost $10,000 per capita.
In its decision, the commission said that the company’s structure in Ireland “did not correspond to economic reality.”
While almost all profits recorded by the two Apple subsidiaries which managed all its non-U.S. sales were internally attributed to a “head office,” the commission found such offices existed “only on paper” and could not have generated such profits.
“These profits allocated to the ‘head offices’ were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force,” it said.
Vestager said member states cannot give tax benefits to selected companies which are not available to others.
“The Commission’s investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years,” she said.
“In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 percent on its European profits in 2003 down to 0.005 percent in 2014.”Apple hit back swiftly today, threatening the ruling would “have a profound and harmful effect on invesment and job creation in Europe.”