Apple crunch: The US and EU in court showdown over ruling to pay back €13 billion in sweetheart tax deals

The EU says Ireland granted Apple €13 billion in undue tax benefits
The US Government has the right to make its case in the European Court
Tim Cook has already called the commission’s ruling ‘political c**p'

By Alex Hawkes, Financial Mail on Sunday

Published: 18:00 EST, 3 September 2016 | Updated: 17:52 EST, 4 September 2016

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Washington and Brussels could face a showdown in the European Court over Apple’s multi-billion pound tax row with the European Commission, legal experts say.

A legal battle looms over the commission’s ruling that Ireland granted the technology giant €13 billion (£11 billion) in undue tax benefits.

Apple is understood to have retained City lawyers Freshfields to handle its case. But competition lawyers told The Mail on Sunday that the US government would also have the right to make its case in the European Court.

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Apple and Dublin are facing a bruising fight with the commission over the potential payment

US treasury chiefs are understood to be furious at the commission’s investigations into the tax affairs of some of America’s best-known brands, as bills payable in Europe could reduce payments to the US tax authorities.

The US Treasury declined to comment on whether it would make representations to the European Court, but with a raft of tax cases looming it is increasingly likely that governments will step into legal battles on behalf of their leading companies.

Apple boss Tim Cook has already called the commission’s ruling ‘political c**p’.

The commission said Apple should repay €13 billion in state aid given by the Irish government over two separate sweetheart tax arrangements. The commission alleged the deals allowed Apple to say that a ‘head office’ based nowhere was responsible for its profits.

In an earlier finding, commissioners said Apple had agreed one deal in 1991 with the Irish revenue that meant it would pay tax on a maximum of $40 million (£30 million) of profits in Ireland, despite an Apple representative admitting there was ‘no scientific basis’ for the figure.

The deal lasted for 15 years – much longer than similar tax agreements in other countries – the commission argued. The UK reviews similar deals every five years.

Apple and Dublin are now facing a bruising fight with the commission over the potential payment.

The Irish coalition government said on Friday that it would contest the ruling, which it feels will undermine its appeal as a low-tax base for multinationals. But the decision will go to a vote in the Irish parliament this week.

US treasury chiefs are understood to be furious at the commission’s investigations into the tax affairs of some of America’s best-known brands

Competition experts said the case was likely to last at least five years, going before the General Court of the European Union in Luxembourg, with an appeal likely to be heard by the European Court of Justice whatever the outcome.

‘The General Court case will not get a judgment for three to four years,’ said Juan Rodriguez, an EU competition expert at City law firm Sullivan and Cromwell.

Apple says the commission’s claim ‘has no basis in fact or law’. In a letter to his customers, Cook wrote: ‘We never asked for, nor did we receive, any special deals.’

The commission’s formal judgment against Apple has yet to be published and may not appear for several months.

Apple is allowed to argue over which elements of the judgment are commercially confidential so that it can have them removed from the public document. In a similar case involving Starbucks it took eight months before the full details emerged.

Commissioners have pursued several multinationals founded in the US over their taxation deals with low-tax European Union member states.

There is a case against Fiat-Chrysler as well as Starbucks, and the commission is due to rule shortly on a case involving Amazon that could see the online retailer repay €400 million to the Luxembourg tax authorities.

The investigations have infuriated the US government which publicly criticised the commission earlier this year.

‘These investigations, if continued, have considerable implications for the United States – for the US government directly and for US companies – in the form of potential lost tax revenue and increased barriers to cross-border investment,’ it said.

‘Critically, these investigations also undermine the multilateral progress made towards reducing tax avoidance.’

Washington and Brussels could face a court showdown over Apple’s multi-billion tax row

One of the underlying issues is the US tax code. Companies pay a federal rate of 35 per cent and state tax on top, but pay no US tax on foreign profits if they are not repatriated.

US companies have exploited the loophole to pile up hundreds of billions of dollars offshore. Combined with other European loopholes, that has allowed Apple, Google and others to pay little or no tax on their European profits.

If Apple is forced to pay €13 billion to Ireland it could offset that payment against any US tax bill that it would face when repatriating its offshore cash.

Cook described the commission’s ruling as ‘political c**p’ in an interview with the Irish Independent, adding: ‘I think that Apple was targeted here. And I think that [anti-US sentiment] is one reason why we could have been targeted.

‘People in leadership positions in several countries tell me that this is the agenda.’

But in a blow to UK Brexiteers hoping to use the row to lure the tech giant to Britain, he said the company wanted to stay in Ireland.

Cook said: ‘I want to be really clear that we are very committed on Ireland. We are going to continue with the expansions we talked about.’