Apple (AAPL) Fined With Europe’s Largest Tax Penalty Ever

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Apple Inc (NASDAQ:AAPL) shares are down close to 3% to about $105 in pre-market hours trading Tuesday following a European Commission ruling on Tuesday that said Ireland must recover more than $14 billion in “illegal tax benefits”- plus a significant amount of interest – from the U.S. tech giant.

The bloc’s anti-trust arm, which is akin to the U.S.’s Securities and Exchange Commission, believes that Ireland’s illegal state aid has allowed Cupertino to rake in profits worth tens of billions of dollars from tax collectors in return for maintaining jobs. Apple opened its first base in Ireland in 1980 and it employs about a quarter of its European-based staff in the Irish city of Cork. The iPhone maker has expanded its operations in Ireland in recent times.

“Member states cannot give tax benefits to selected companies — this is illegal under EU state aid rules,” said in a statement EU Competition Commissioner Margrethe Vestager.

Vestager said a three-year investigation found that for many years “only a small percentage of Apple Sales International’s profits were taxed in Ireland, and the rest was taxed nowhere”. According to Commissioner Vestager, Apple’s effective corporate tax rate on its European profits declined from 1% in fiscal year 2003 to only 0.0005% in FY 2014.

“The European Commission has concluded that Ireland granted undue tax benefits of up to 13 billion euros [$14.5 billion] to Apple,” Vestager noted.

In a letter published Tuesday, Cupertino called European Commission’s investigation into the company “an effort to rewrite Apple’s history in Europe”. The company warned the ruling will have “serious, wide-reaching implications.”

“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. In Ireland and in every country where we operate, Apple follows the law and we pay all the taxes we owe,” read an excerpt of Apple’s letter.

Meanwhile, Ireland’s finance minister said he “profoundly” disagrees with EU’s ruling and that Ireland would contest the decision.

“The decision leaves me with no choice but to seek cabinet approval to appeal the decision before the European courts. 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,” Noonan said in a statement issued by the Irish finance ministry.

The ruling is likely to anger Washington, which has accused Brussels of campaigning against U.S. corporations. Apple and other major U.S. firms including Google-parent Alphabet Inc (NASDAQ:GOOGL) and software giant Microsoft Corporation (NASDAQ:MSFT) hold revenue not subject to U.S. corporate income tax, outside the United States.

According to a USA TODAY report, the ten firms with the largest holdings collectively have $724 billion in untaxed foreign earnings outside the U.S.

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