The European Commission is poised to escalate a high-stakes feud with Washington Tuesday by hitting Apple with a massive tax bill, explaining the iPhone maker got illegal help from Ireland that ultimately boosted its bottom line.
The level of political risk EU Competition Commissioner Margrethe Vestager is taking could depend on the amount of back taxes it wants Ireland to claw back, which could easily total billions of euros. The case against Apple is one of several similar cases Vestager has in the pipeline.
Late last year, she ordered the Netherlands to collect up to €30 million in taxes from Starbucks. Her next target is expected to be Amazon, which may be on the line for some €400 million to Luxembourg, Reuters reported.
The trend has prompted threats from the U.S. Treasury Department, which released an unprecedented a 26-page white paper last week detailing its concerns. The Commission’s investigations could undermine U.S. tax treaties with EU member countries, it said.
“To the extent that such foreign taxes are imposed on income that should not have been attributable to the relevant Member State, that outcome is deeply troubling, as it would effectively constitute a transfer of revenue to the EU from the U.S. government and its taxpayers,” the U.S. Treasury said in a white paper released Wednesday.
The Commission tried to downplay the politics.
“There is no bias,” European Commission spokeswoman Lucia Caudet said. “All companies, no matter their nationality … should pay taxes in line with national tax laws.”
It’s unclear for how much Apple will be on the hook. The top estimate was from JPMorgan Chase at about €17 billion, but Vestager’s previous calculations have seemed more like cattle prods to get national politicians to reform corporate policies.
Ireland and Apple have said they will appeal the decision, but pending a court verdict Dublin will be required to collect the back taxes and Apple will have to reflect the sum on its financial statements.
Apple declined to comment Monday evening, but reiterated its past position that it pays all required taxes in the countries where it does business.
Ireland has the lowest corporate tax rate in the EU, a mere 12.5 percent, and far below America’s 35 percent rate. The deal Apple got from Dublin in 1991 concerns two companies: Apple Operations Europe and Apple Sales International. These are described as being “incorporated” in Ireland but not resident, according to the Financial Times.
The high U.S. tax rate is one of the reasons for corporate America’s offshore cash hoards. According to Moody’s, a credit-rating agency, the offshore balance for all U.S. companies now totals more than $1.1 trillion, with the largest treasure chests belonging to Apple, Microsoft, Google, Cisco and Oracle.
In every state aid case, Vestager has argued these pacts give companies a financial edge over competitors and violate EU rules. She also has stressed that she has gone after European companies too, including Fiat, German chemicals company BASF and Belgium-based brewer Anheuser-Busch InBev.
Other multinational corporations have been reviewing their existing tax agreements with European countries to try to figure out their exposure. To frustrated U.S. corporations, it appears no one but the EU is authorized to make a final decision, throwing rulings they thought were ironclad into limbo.
Ultimately, American officials’ main point is that the money involved belongs to the United States. In a February letter to Commisson President Jean-Claude Juncker, Treasury Secretary Jack Lew argued that American companies’ decision to hold money overseas in order to defer their U.S. tax payments doesn’t give European countries “the legal right to tax this income.”
“U.S. multinationals generally do not conduct the cutting-edge research and development that creates substantial value in the European Union, and as a result, comparatively little of their income is attributable to their European operations,” Lew wrote.
Critics of corporate tax maneuvers contend that Apple is avoiding U.S. tax, the subject of a 2013 Senate investigation. Commission competition official Karl Soukup has thanked U.S. lawmakers for that inquiry: “A very important source of information – and we should be grateful to the U.S. for this – were the public hearings in the U.S. Senate about Apple,” he said in February during a tax conference in Washington.
Tony Romm contributed to this article.
This story has been updated with the latest developments.