US Warns EU of ‘Undesirable Precedent’ Ahead of Apple (AAPL) Ruling

The European Commission goes after Cupertino-based smartphone maker Apple (AAPL) for tax avoidance allegations.

Apple AAPL

Just weeks before the European Commission is expected to make a decision over Apple Inc.’s (NASDAQ:AAPL) tax avoidance allegations, the US Treasury Department slammed the executive body for “threatening international agreements on tax reform,” and warned that a decision against the iPhone maker could “set an undesirable precedent.” In a report published last Wednesday, the US regulator said the decision would make it into a “supra-national tax authority” overriding the tax codes of its member states.

The US Treasury also noted that Brussels was using a different set of criteria to judge cases involving US conglomerates, adding that potential penalties are “deeply troubling”. If found guilty, Apple will be slapped with a multi-billion pound bill for unpaid taxes.

The Brussels-based commission is probing the tax deals granted to US companies for establishing headquarters across Europe. The Cupertino-based iPhone maker was accused of sheltering billions of pounds in profit in the Republic of Ireland tax-free, in a deal it struck with Irish authorities. Investment banker JP Morgan (NYSE:JPM) noted that that Apple could face a bill for £14.3 billion or $19 billion if it loses the case.

Apart from Apple, the EU commission is also investigating Starbucks (NASDAQ:SBUX) and Amazon (NASDAQ:AMZN) over allegations of tax evasion. In 2015, the commission ruled that Fiat (NYSE:FCAU) and Starbucks were given “sweetheart tax deals” in the Netherlands. Apple is being investigated for accepting special tax benefits to set up shop in Ireland, benefits that were not extended to other companies.

Earlier this year, the US government slammed the investigations by Brussels, accusing the executive body of targeting US companies. The Treasury Department asked Brussels to reconsider its position on the case, arguing that penalizing these firms will cause negative effects for cross-border taxation.

In a blog post, Robert Stack, a Treasury Department deputy wrote, “The investigations have global implications as well for the international tax system and the G20’s agenda to combat [tax avoidance] while improving tax certainty to fuel growth and investment.

In particular, recoveries imposed by the Commission would have an outsized impact on U.S. companies.  Furthermore, it is possible that the settlement payments ultimately could be determined to give rise to creditable foreign taxes.  If so, U.S. taxpayers could wind up eventually footing the bill for these State aid recoveries in the form of foreign tax credits that would offset the U.S. tax bills of these companies. The investigations have global implications as well for the international tax system and the G20’s agenda to combat base erosion and profit shifting while improving tax certainty to fuel growth and investment.”

Stack added, “A strongly preferred and mutually beneficial outcome would be a return to the system of international tax cooperation that has long fostered cross-border investment between the United States and the EU Member States.  The U.S. Treasury Department remains ready and willing to look for a path forward that achieves the shared objective of preventing the continued erosion of the corporate tax base while ensuring our international tax system is fair for all.”

In response, the commission said it would ensure all EU laws are applied equally to all companies with HQs in its mandate.

Meanwhile, Apple reiterated that it had not had “any special tax deal with the Irish government”.

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