EC’s $15B tax penalty on Apple has Ireland, US companies nervous

Global Business

Technology giants including Apple and Microsoft have been taking advantage of Irish corporate tax laws. Above, Apple’s campus in Cork, Ireland. (Paul Faith / AFP)

On August 30th, the European Commission decided Ireland’s corporate tax structure for Apple was illegal. Apple’s tax benefits allowed it to pay less than one percent a year in tax in 2003 and 0.005 percent in 2014. Apple said it abided by all laws, but the E.C. says the tax structure amounts to a subsidy and has ordered Apple to pay $15 billion in back taxes.

Apple may be the poster child for such accounting practices, but many other U.S. firms are structured the same way.

CCTV America’s Karina Huber reports.

EC\'s $15B tax penalty on Apple has Ireland, US companies nervous

EC\'s $15B tax penalty on Apple has Ireland, US companies nervous

On August 30th, the European Commission decided Ireland’s corporate tax structure for Apple was illegal. Apple’s tax benefits allowed it to pay less than one percent a year in tax in 2003 and 0.005 percent in 2014. Apple said it abided by all laws, but the E.C. says the tax structure amounts to a subsidy and has ordered Apple to pay $15 billion in back taxes. Apple may be the poster child for such accounting practices, but many other U.S. firms are structured the same way. CCTV America’s Karina Huber reports.

Apple is in the spotlight facing the largest tax bill ever levied by the European Commission, as well as accusations of tax evasion. But Apple is far from the only American company that established operations in foreign countries to lower its tax bill.

More than 700 U.S. companies operate in Ireland, including Facebook, Pfizer and Google. Other European countries like Holland and Luxembourg have also become destinations for U.S. companies looking for tax advantages.

John Addis of FourWorld Capital said setting up a subsidiary abroad is so rampant among American firms because of U.S. tax law.

“The U.S. is somewhat unique in that it taxes its corporations on their worldwide income,” Addis said. “What you’ll find in a lot of other countries is that if they earn income offshore and they bring it back to their home country they are not taxed at all.”

But European officials are taking a harsher look at this controversial practice. In 2015, Starbucks was ordered to pay up to $34 million in back taxes to Holland. Car maker Fiat faces similar fines for its business in Luxembourg. Both are appealing.

The European Union is currently investigating the tax practices of Amazon and McDonald’s.

Experts said the EU’s tough new approach could make American companies think twice about establishing offices in Europe. That puts countries like Ireland in a tough spot.

For Apple, the timing of this ruling couldn’t be worse. Just a week from now it’s launching its new iPhone 7. Analysts said the last thing Apple wants is for consumers to be pondering whether the world’s most valuable brand is a tax dodger.