Apple CEO Tim Cook flew to Brussels Thursday to hold “private” talks with European Union's antitrust chief Margrethe Vestager in a sign of how seriously Apple is taking an investigation into its tax affairs in Ireland, which could land the iPhone maker with a potential tax bill of up to $19 billion.
While Apple and the EU Commission have both confirmed the meeting took place, neither side has said what was discussed in the Belgian capital. However, with an 18-month investigation into Apple's tax affairs in Ireland set to conclude in the coming months, it is clear that Cook is concerned about the outcome.
The European Commission opened an investigation in 2014 to look into the possibility that Apple had reached a special arrangement with the Irish government so that it would pay significantly less tax. On Thursday, as Cook was meeting Vestager in Brussels, Ireland's Prime Minister Enda Kenny was defending Ireland's role, by calling accusations that the country was a tax haven for Apple “false and baseless.”
Speaking to Bloomberg TV, Kenny said: “As far as Ireland is concerned and we’ve been very clear about this -- we’ve dealt with all the issues about reputational damage, about comments that Ireland was some sort of tax haven which was completely without foundation and utterly untrue.”
According to JP Morgan, in the worst-case scenario, Apple could be liable for a tax bill of $19 billion. However, figures recently compiled by Bloomberg Intelligence show that if the EU rules against Apple and Ireland, the tax bill would be closer to $8 billion.
Apple pays a foreign tax rate of only about 1.8 percent while earning about 55 percent of its total revenue outside the United States, according to the Bloomberg analysis. But if the commission rules its accounting practices violate EU rules, Apple could be on the hook for a 12.5 percent tax on $65.1 billion in profit made from 2004 to 2012.
Apple is not the first major multinational to be investigated by the European Commission over its tax affairs — though in purely monetary terms it is the most valuable. The commission previously found tax deals by Fiat Finance in Luxembourg, Starbucks in the Netherlands, and by 35 companies in Belgium, were illegal and has ordered them to repay millions of euro-worth of tax to the states.
A final ruling was expected in November but investigators sought additional information from the parties involved and it is understood those responses are due shortly with a decision now expected in March.
On the other side of the Atlantic, politicians are urging the Obama administration to take reciprocal action if the EU does fine Apple. The Senate finance committee is urging U.S. Treasury Secretary Jack Lew to impose sanctions on European companies operating in the U.S. and consider a “double rate of tax” to be imposed on any country engaging in discriminatory taxation.