The European Commission is expected to release results this week of its investigation into whether Apple shielded billions in taxes from the U.S. over two decades by striking backroom deals with the Irish government.
The European Union’s executive body began investigating in June whether EU states were giving inappropriate tax breaks to Apple and other American companies after a U.S. Senate committee accused Apple of moving profits through Ireland to avoid paying billions in U.S. taxes. If the investigators determine that Apple has prospered from illegal tax deals, the company could owe a record fine of billions of euros and face an effective tax rate increase.
The Irish government already taxes corporations at 12.5 percent, less than half the corporate tax rate in the U.S., and it has come under international scrutiny for loopholes that allow multinationals to pay even less than the official rate in taxes. A U.S. Senate committee claimed in May last year that Apple obtained a “special rate” of 2 percent or less through “negotiations with the Irish government.”
The Irish business minister rejected those claims, but the government said in October last year that it would close a loophole used by Apple. Irish law allowed Apple to establish its headquarters in the country on paper without establishing a tax residency, but beginning in 2015, the Irish government said it will require companies to declare a tax residency in another jurisdiction or pay its full corporate tax rate. Apple CEO Tim Cook has said his company has paid all the taxes it owes and doesn’t depend on “tax gimmicks.”
At $50 billion in pretax income last year, every 1 percent increase in Apple’s effective tax rate could drag down earnings by $500 million.