After being embroiled in a tax scandal and investigated by the European Commission, the worst is yet to come for Apple Inc. (NASDAQ:AAPL). Ahead of an official ruling on the case, which is expected on Tuesday, Margrethe Vestager of the EU’s competition commissioner distributed a 130-page judgment on Apple’s suspicious Ireland connections and things are looking bleak.
The European Commission started its investigation into Apple’s Irish tax rate in 2014 and Tuesday’s judgment marks the end of a three-year investigation. According to the judgment, the commission concluded that Apple received “illegal state aid” from Ireland — essentially a sweetheart deal that allowed the computer maker to unfairly reduce its tax bill in a way not available to other companies.”
If found guilty, the Cupertino tech giant could be slapped with billions of dollars in tax penalty. The commission noted how and where Apple lists its intellectual property for tax purposes, one of the many loopholes that tech firms use to channel assets to low-tax countries.
While the decision did not provide a specific amount of penalty, the fine could be Europe’s largest tax penalty ever, according to the Financial Times. The Financial Times noted that the exact amount could be at “billions of euro.” Vestager will reveal the estimated tax penalty today. According to previous estimates, Apple’s liability for back taxes in Ireland is at $19 billion while others estimated it just under $1 billion.
Meanwhile, Reuters reports that the commission could recommend the recovery of “over 1 billion euros” by the Irish government from the California-based smartphone maker. The penalty costs more than the biggest penalty under EU’s jurisdiction – €1.4 billion levied against Electricité de France (EDF) in 2015. EDF is a French state-owned energy group, which received €1.37 billion in government aid.
After the decision, Apple may have to restate its assets in Ireland and provide new financial statements.
Last week, the US Treasury warned the EU that should it come to a decision against Apple, it would create an “unfortunate precedent.” Apple CEO Tim Cook also slammed the international tax system, vowing to appeal the decision should he feel that the company did not “get a fair hearing.”
In a Washington Post feature, Cook gave a brief overview of how the international system works.
“Let me explain what goes on with our international taxes. The money that’s in Ireland that he’s probably referring to is money that is subject to U.S. taxes. The tax law right now says we can keep that in Ireland or we can bring it back,” Cook said
“It’s important for everyone to understand that the allegation made in the E.U. is that Ireland gave us a special deal. Ireland denies that the basic controversy at the root of this is, people really aren’t arguing that Apple should pay more taxes. They’re arguing about who they should be paid to. And so there’s a tug of war going on between the countries of how you allocate profits,” he added.