Last month, the European Commission handed down a hefty $14.5 billion (€13 billion) tax bill to Apple, Inc. The maker of the popular iPhone and iPad devices now owes Ireland back taxes dating from 2003 to 2014. This is in response to what the European Commission claims is Ireland gave to Apple over the course of those years, something the European Commission states in its press release as "illegal state aid".
The European Commission claims that Ireland gave Apple selective treatment in order to attract the company to set up shop in the country. The investigation into the alleged sweetheart deal identified the fact that Apple's tax on its European profits fell from 1% in 2003 to .005% in 2011. The investigation, however, relates more specifically to two tax deals Ireland and Apple hashed out in 1991 and 2007 that appear to go against the European Union’s tax policies. In fact, on corporate tax policies, the EU’s main policy is simplified in the following statement:
“The EU also pays particular attention to fair company taxation. Loopholes between different countries' tax systems allow certain companies to engage in 'aggressive tax planning', to minimize their tax bills. Close coordination and information sharing between tax administrations aim to prevent this.
EU governments should also ensure their corporate tax regimes are open and fair, and not designed in a way which might unfairly lure firms away from other EU countries, or otherwise erode the tax base there. To this end, they have signed up to a code of conduct pledging not to do this.”
Given this particular EU policy applies to all EU member states, it should come as no surprise that Ireland and Apple did not come under fire sooner. Some observers note that Apple’s punishment is unfair, given that the European Union did not develop its current non-competition for corporate tax rates until 2003. That being the case, however, would explain why the European Commission only conducted its investigation starting at that point, given the fact that Ireland was giving Apple a special tax rate since for many years prior.
Apple and Ireland working together to appealing the ruling. Both hold the belief that the lower tax rates help the country by providing jobs that would otherwise not exist. And indeed, since Apple employs around 6,000, it is considered a major employer in the country. Yet many Irish citizens do not see this as a worthy enough reason for Apple to avoid tax payments. A poll in the Irish online site The Journal shows a noticeable majority (58%) who believe that Apple should pay back the $14.5 billion the European Commission says the company owes.
Apple is not the only company coming under the EU’s taxation microscope. Many other large U.S.-based companies have been accused of using Ireland as a sort of tax loophole to avoid paying high European Union tax rates. That list includes names such Google, Starbucks, Amazon, Gap and Microsoft.
Ireland’s incentive to provide lower tax rates is easy to understand. A 2015 study from the Tax Foundation found that lowering tax rates would lead to a rise in both a country's GDP and a number of available jobs. Given the many different tax rates across Europe and Ireland history of struggling economically, the lower corporate tax rates it provides have overall been a boon to the small country, at least initially.
European Union Corporate Tax Rates
Given the renewed interest in how much taxes companies pay in different countries, here is a look at corporate tax rates across Europe, alongside the GDP of those countries and their unemployment and inflation rates.