Amazon, McDonald’s Face EU Tax Audit Similar to Apple’s

The European Union on Tuesday ordered Apple to pay a record 13 billion euros in back taxes in Ireland, saying deals allowing the U.S. tech giant to pay nearly no tax were illegal.

Ireland’s accelerating economy is already producing rapid growth in tax collections from workers, sales tax and an EU-leading multinational sector of around 1,000 companies with Irish bases.

The EU is also probing the tax arrangements of Amazon and McDonald’s. Apple paid an effective tax rate of 1% on its European profits in 2003 and as little as 0.005% in 2014, according to a report to clients from Credit Suisse to clients co-authored by analyst Kulbinder Garcha.

Peter Vale, a Dublin-based corporate tax expert for accountancy firm Grant Thornton, calculates that Tuesday’s judgment if upheld on appeal will cost Apple 19 billion euros ($21 billion) because the order includes interest for unpaid tax going back more than a decade. “As a result, the tax rulings enabled Apple to pay substantially less tax than other companies, which is illegal under European Union state aid rules”.

For Ireland, a country of barely 4.6 million people, that sum would be a huge windfall – equivalent to more than $3,150 for every man, woman and child.

After the Apple ruling, a spokesperson for the U.S. Treasure said the latest ruling could “undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the USA and the EU”. “A company’s profits should be taxed in the country where the value is created”. Apple Inc., based in Cupertino, California, has almost 6,000 employees in Ireland, Cook says.

The EU investigation found that Apple had used two fully owned Irish subsidiaries, Apple Sales International and Apple Operations Europe, to record all its sales in Europe in Ireland, rather than in the countries where the transactions actually took place.

“The Commission concluded that the tax rulings issued by Ireland endorsed an artificial allocation of Apple Sales International and Apple Operations Europe’s sales profits to their ‘head offices, ‘ where they were not taxed”, the European Union said in a statement.

In an open letter posted on the Apple website, Mr Cook said Apple had started operating in Ireland at a time when the city of Cork was suffering from high unemployment and extremely low economic investment. “This claim has no basis in fact or in law”.

Both Apple and the Irish government said they would challenge the EU action in the European courts, and predicted it would be vindicated. Apple now has to repay the benefits, ‘ Vestager told a news conference.

The United States fired back immediately, saying retroactive tax assessments by the European Union were unfair.

Even the European Commission voiced indirect criticism of the USA tax code, suggesting that Washington could require Apple’s Irish operations to pay larger amounts of money to the US parent to finance research and development, which would increase Apple’s USA tax bill.

Apple said in a statement: “The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the worldwide tax system in the process”.

Reacting to the order, Apple chief Tim Cook warned the ruling threatened jobs and investment in Europe.

“Over the years, we received guidance from Irish tax authorities on how to comply correctly with Irish tax law – the same kind of guidance available to any company doing business there”.

Noonan said Tuesday in a statement issued minutes after the judgment: “I disagree profoundly with the commission’s decision”.

As of June, Apple had over $200 billion stashed outside the U.S.in countries like Ireland. But some analysts said the ruling, if upheld, could change the calculus that has kept USA corporate money overseas if it means higher taxes in low-tax European countries like Ireland.

The U.S. Treasury Department, which enforces federal tax policy, warned that U.S. -EU economic relations could be affected by the stunning decision by the European Commission.