US move may cause Apple to reconsider €13bn tax appeal

New US tax legislation will mean there will be little financial advantage for Apple in fighting the controversial European Commission ruling that it must pay €13 billion in back tax to the Republic. A new US tax bill, shortly to become law, will mean Apple will now have to pay tax in the US on the overseas earnings subject to the ruling, if it does not pay it here.

The company now has little financial incentive to continue an expensive appeal process through the European courts against the commission ruling, bar trying to escape the interest and penalties the ruling seeks to impose.

The new US tax bill, expected to be signed into law shortly by President Donald Trump, involves sweeping changes in corporate tax. Among the key measures are a 15.5 per cent tax on cash piles held overseas by US companies. Many big US companies, including Apple, have hoarded profits earned from overseas operations offshore, as under the old rules they could avoid paying tax on it until it was repatriated to the US. Now tax will be payable on this money over eight years.

The new tax measure will pose questions for Apple over its legal strategy in relation to the 2016 ruling that the company owed Ireland €13 billion in back tax, plus interest and penalties.

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Appeals

Both Apple and the Government are appealing the ruling to the European courts in a process likely to last some years. However, the new US tax laws change the financial calculation for Apple, as tax will now be paid on the money whatever happens. The only question is where it will be paid.

The commission ruling examined profits of more than €100 billion earned by Apple in its European operations and found that tax should have been paid on this money at the 12.5 per cent Irish rate.

Were Apple to win the appeal, it would face a 15.5 per cent US tax charge on these profits, albeit payable over eight years. Were it to drop the appeal, it would pay tax at the 12.5 per cent rate here – providing a unprecedented windfall for the Irish exchequer – and the balance of 3 per cent in the US.

Even if Apple decided not to proceed with its appeal, the Government would have to consider whether to continue with its case, given the important principles its says are involved in relation to tax sovereignty.

Escrow account

The commission ruling opened the possibility that some of the tax could be payable in other EU jurisdictions and, given the amount of cash involved, there is likely to be controversy now wherever Apple ends up paying. Another issue for the company is that the commission had also demanded it pay interest and penalties on the tax due on profits earned between 2004 and 2014. The commission estimated that the interest element would be somewhere under €2 billion. This is now the only financial reason to pursue the appeal.

Both Apple and Ireland have strongly contested the basis of the commission's ruling. Ireland is due to collect the money and put it into an escrow account pending the appeals, though there has been dispute between the Government and the commission over how long this is taking. The European Competition Commissioner, Margrethe Vestager, recently referred Ireland to the European Court of Justice over the delay, a move heavily criticised by the Government.