Apple €13bn tax bill: The ruling explained by leading economist

Apple €13bn tax bill: economist explains impacts of European Commission's ruling

Apple has been hit with a record tax bill

Tuesday, August 30, 2016

An economist has explained how Apple accrued a monumental tax bill, and suggested it could create a number of challenges for the Republic of Ireland.

The European Commission has ruled that Apple should pay a record €13bn in Irish back-taxes after a three-year investigation found the company's tax benefits in the country were illegal. Both Apple and Ireland have said they would appeal the ruling.

Simon French, the chief economist for Panmure Gordon, told Julia Hartley-Brewer: "What this relates to is a so called 'sweetheart deal' between Apple and the Irish government. This effectively is in keeping with the Irish economic strategy for a couple of decades now. They provide very attractive corporation tax rates - as low as 12.5% - to try to encourage companies to locate in Ireland.

"Apple set up their company in Europe in a way that customers were contractually buying products from Apple Sales International which was based in Ireland. Immediately they could book all of that revenue in an area which was already a low-tax jurisdiction, and the European Commission have now ruled there were further deals to reduce the tax down to 1%."

Apple have said the commission is attempting "to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process." The tech giant has already threatened to pull jobs and investments from the continent. Meanwhile, Ireland has already said it doesn't want Apple's money, vowing to take the EU to court over the decision. 

French went on to outline the manifold issues thrown up by the ruling, saying: "It's the challenge of calling a corporation's bluff - you're never quite sure of the way the threat will be carried through.

"If they [Apple] don't follow through with any payments, it adds strength to other countries looking to crack down on aggressive tax planning.

"In Ireland, there's a house-building crisis at the moment, there's still the overhang of the big property bust which took place there, homelessness is on the rise...

"How will it play with the Irish electorate if the government is seen to be turning down the offer of 13 billion euros? It's a very delicate balancing act."