Tech giant Apple has obeyed a European Commission ruling which ordered the firm to pay Ireland €14.3 billion as taxes. The ruling issued in 2016 stated that the 1% effective tax rate the firm paid in Ireland amounted to illegal state aid. The amount will be paid into an escrow account pending the determination of an appeal, which could take years to be heard.
A tax ruling passed by Ireland in 1991, gave the company leeway to pay 4% tax on profits made by its Irish operations which have earned it over $200 billion in the last ten years.
Apple’s operations in Ireland are largely patents owned by the company. They, however, paid very little in taxes, as they were not resident anywhere.
The company and Ireland have denied any form of wrongdoing. Apple’s Chief Financial Officer at the time Luca Maestri stated that
“It’s very important that people understand that there was no special deal that we cut with Ireland. We simply followed the laws in the country over the 35 years that we have been in Ireland.”
Why the EC moved against Apple
The European Commission is of the view, the clause that enabled the company to pay such a light bill is anti-competitive. Countries with a higher tax rate would be at a disadvantage.
Implications
While the bill may be a heavy one, Apple remains liquid with over $200 billion in reserves.
Going forward, the firm could decide to build in the taxes on products sold outside the United States. International sales accounted for 60% of its most recent quarterly revenue.
Apple was founded by Steve Jobs, Steve Wozniak and Ronald Wayne on April 1, 1976. Jobs was, however, left as the sole founder when Wayne and Wozniak sold their stakes.
It is the world’s largest information technology company by revenue and the second largest phone manufacturing company in the world, behind Samsung.
Results for the third quarter ended June 30, 2018, show the company made revenue of $53.3 billion, an increase of 17 percent from the corresponding period of the prior year. Earnings per share jumped 40% year on year to $2.34.
Apple is currently trading at $218.24 on the NASDAQ exchange. The company recently released three new iPhoness: iPhone Xs, the iPhone Xs Max, and the iPhone Xr.