Apple’s Tax Dispute With Europe and the Need for Reform

On August 30, 2016, European Competition Commissioner Margrethe Vestager demanded that Ireland reclaim €13 billion ($14.5 billion) from Apple Inc. to redress improper “state aids” conferred on the company through Irish tax rulings in 1991 and 2007. The European Commission’s demands triggered a huge uproar—from Ireland, Apple, other multinational corporations, and the US Treasury Department. According to the Commission, Apple paid an effective corporate tax rate of less than 1 percent between 2003 and 2014, through a sweetheart tax deal with Irish tax authorities. The Commission alleged this to be a breach of EU state aid rules and instructed Ireland to claim unpaid taxes from Apple. Both Apple and Ireland announced they would appeal. Apple denied the extremely low effective tax rate claimed by the Commission and insisted that it had paid all taxes in accordance with existing treaties, laws, regulations, and rulings. Ireland appealed in light of its position as a favored site for multinational corporations doing business in Europe. The US Treasury Department, aligning with Apple and Ireland, criticized the Commission’s new approach as applied in the Apple case, as well as the retroactive component of the decision and its detrimental impact on the ability of member states to honor bilateral tax treaties.