American politicians Charles Schumer and Paul Ryan could hardly be more different. But Mr. Schumer, the left-leaning Democratic Senator, and Mr. Ryan, the conservative Republican Speaker of the House of Representatives, are united in their opposition to the European Union’s decision to slap Apple with €13 billion ($14.5 billion) in back taxes.
The European Commission’s ruling on Tuesday, which ordered Ireland to collect the record penalty from the Silicon Valley technology icon, was “a cheap money grab,” Senator Schumer blasted.
“This decision is awful,” agreed Speaker Ryan, calling the move a “direct violation of many European countries’ treaty obligations” and “precisely the kind of heavy-handed taxation that kills jobs and opportunity.”
Led by E.U. Competition Commissioner Margrethe Vestager of Denmark, the European Union’s executive body called for Irish tax authorities to recover the “illegal tax benefits” from 2003 to 2014, plus interest that experts say could add another €6 billion to Apple’s bill.
But judging by the initial reactions in Washington, with Obama administration officials also condemning the action, the ruling has the potential to damage relations with the European Union.
“It's maddening, it's disappointing, it's clear that this comes from a political place, it has no basis in fact or in law.”
U.S. Treasury Secretary Jack Lew on Wednesday called the move an affront. “I have been concerned that it reflected an attempt to reach into the U.S. tax base to tax income that ought to be taxed in the United States,” Mr. Lew said at an event in Washington.
Last week, a Treasury Department white paper commissioned by Mr. Lew warned of the apparent expansion of the E.U. Commission’s Directorate General for Competition into “a supra-national tax authority” through its enforcement actions.
Citing E.U. overreach in the Apple case, and another involving Amazon, the Treasury Department report said the Obama administration “continues to consider potential responses should the Commission continue its present course.”
White House Press Secretary Josh Earnest on Tuesday said the E.U. decision effectively would allow Apple to deduct its Irish tax payment from the company’s U.S. taxes.
“That wouldn’t be fair to U.S. taxpayers,” he told reporters at a press briefing. The White House was concerned about “a unilateral approach,” he added, which “threatens to undermine progress that we have made collaboratively with the Europeans to make the international taxation system fair.”
Apple on Thursday expressed outrage at the ruling and vowed to fight it. In an interview with Irish broadcaster RTÉ broadcast on Thursday morning, Apple Chief Executive Tim Cook said: “It’s maddening, it’s disappointing, it’s clear that this comes from a political place, it has no basis in fact or in law, and unfortunately it’s one of those things we have to work through.”
“When you’re accused of doing something that is so foreign to your values, it brings out an outrage in you, and that’s how we feel.” He said neither Apple nor the Irish government had done anything wrong.
In a note to investors on Tuesday, the tech giant had called comments made by Commissioner Vestager “extremely misleading and deceptive.” Ms. Vestager had said Apple paid “an effective corporate tax rate of 1 percent on its European profits in 2003 down to 0.0005 percent in 2014.”
But Apple told investors it paid $400 million in taxes in Ireland in 2014, which it said was “considerably more than the Commission’s figure suggests.” Apple also told investors it was “one of the largest corporate taxpayers in Ireland that year, if not the largest.”
Both Ireland and Apple plan to appeal the ruling – which could take several years for European courts to resolve. The company plans to place an unspecified amount of cash into an escrow account as a result of the Commission’s decision. It does not expect its cash balance to be impacted, however.
But Ms. Vestager is not backing down. “Member states cannot give tax benefits to selected companies – this is illegal under E.U. state aid rules,” she said.
“The vast majority of decisions in this area have stood up in court.”
Anti-trust experts in Brussels see it as unlikely that European courts would rule against the Commission’s decision.
Ulrich Soltész, a partner at law firm Gleiss Lutz, said the Commission’s ruling rests upon strong legal footing. “The vast majority of decisions in this area have stood up in court,” Mr. Soltész told Handelsblatt. Given that attorneys at the Commission have experience with cases involving Starbucks and Fiat, he said the decision was “certainly not built on sand.”
Another legal expert on anti-trust matters said it would be difficult for Apple and Ireland to convince a judge to rule in their favor “given the obviously extremely low tax rate.”
Moreover, European state aid rules are extremely nebulous and give the Commission “enormous latitude,” said the source, who declined to be named.
But Ms. Vestager may be legally exposed through her retroactive repeal of member state tax assessments, added another anti-trust expert in Brussels.
Apple has jumped on the same point, arguing that it has acted according to legally-binding decisions of Irish tax authorities since 1991. But the E.U. Commission nullified Ireland’s 1991 decision and its 2007 revision, arguing that the two tax rulings allowed Apple to book billions of euros in European profits at two subsidiaries that are not domiciled or taxed anywhere.
In an August 30 open letter to customers in Ireland, Apple Chief Executive Mr. Cook criticized the Commission for launching an effort “to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process.”
Ms. Vestager invited other E.U. member states to review their own claims against Apple. Germany’s finance ministry is doing so. But a ministry source told Handelsblatt there did not appear to be “any impacts for Germany.”
Till Hoppe and Thomas Jahn are correspondents for Handelsblatt. Donata Riedel and Moritz Koch, also correspondents for Handelsblatt, and Garrett Hering, an editor at Handelsblatt Global Edition, contributed to this article. To contact the authors: firstname.lastname@example.org, email@example.com