EU delays decision in Apple tax probe

Competition Chief Margrethe Vestager says she doesn't want to rush a decision in investigations to determine whether Apple and other companies violated European Union tax rules.

Don Reisinger
CNET contributor Don Reisinger is a technology columnist who has covered everything from HDTVs to computers to Flowbee Haircut Systems. Besides his work with CNET, Don's work has been featured in a variety of other publications including PC World and a host of Ziff-Davis publications.
Don Reisinger
4 min read

Apple could be forced to shell out billions for its tax deal with Ireland. James Martin/CNET

Apple will have to wait to find out whether it will be forced to pay boatloads of cash over its tax practices in Europe.

European Union Competition Commissioner Margrethe Vestager has pushed back the self-imposed deadline to complete investigations into the tax practices of Apple, Amazon, Starbucks and Fiat Finance & Trade. The EU had hoped to have a decision by the middle of this year, but according to Bloomberg, Vestager told the European Parliament on Tuesday that obtaining needed information from companies has been "time consuming."

Vestager didn't say when her office would complete the investigations, but told the European Parliament that her office "will not sacrifice the rule of law or the quality of our work to speed up the process."

Although four companies are being probed, Apple's high visibility has put it in the middle of the controversy. Last June, the EU opened an investigation into Apple's tax practices in Ireland to determine whether the company's tax rate -- about 2 percent, far lower than the standard 12.5 percent corporate tax rate -- was actually illegal state aid from Ireland.

Apple, which operates two subsidiaries in Ireland, has said it negotiated its tax deal with the country and has committed no wrongdoing. Amazon, which has a similarly low tax rate in its European home base of Luxembourg, has said the same. The Netherlands' treatment of Starbucks and Fiat Finance & Trade tax practices in Luxembourg are also under investigation; both have said they acted legally.

Neither Apple nor Amazon immediately responded to a request for comment.

The European Commission -- the executive arm of the European Union -- has grown increasingly hostile towards the companies, arguing that they're not paying their fair share. With several countries across the EU hemorrhaging money, the commission is very interested in determining the nature of tax relationships with multinational companies and finding revenue to help bolster the financial standing of its member nations.

Although these companies have been tapped for possible violations, they're by no means alone. In fact, a range of companies -- including tech heavyweights Facebook, PayPal and Twitter -- operate businesses in Ireland. By operating subsidiaries in Ireland, the companies don't have to pay US taxes on money generated from the regions those subsidiaries serve as long as the money remains overseas and is reinvested in non-US regions. The EU, however, believes the rate Apple pays in Ireland is too low, even for a country where the normal corporate tax rate is about a third the rate of the US.

In 2013, the US Senate launched an investigation into the matter and discovered that Apple's Ireland-based subsidiary could be holding as much as 60 percent of the company's profits, despite its headquarters residing in the US. The US government argued that Apple and other companies are sheltering billions of dollars in tax revenue in Ireland.

During a Senate hearing in 2013, Apple CEO Tim Cook told US lawmakers that Apple was not using "tax gimmicks" to shelter its profits and acts within the confines of local laws around the world. The company has stuck to that argument, saying that it has not acted illegally in any way.

Still, Apple is preparing for the worst. Last week, the company issued a filing with the Securities and Exchange Commission informing investors that it could be forced to pay up to 10 years worth of back taxes in the EU. The company didn't say exactly how much that could cost, but did acknowledge that the figure could be "material."

Public companies, with help from their auditors, determine what is "material" to their financial statements, and thus what must be reported to shareholders. In most cases, materiality is based on how much money the company generates in revenue and profit. With a company like Apple that generates billions of dollars in revenue and profits each quarter, that figure is quite large. Something that is immaterial means that the figure is small enough to not have an impact on the company's financial picture.

Last year, reports suggested that Apple could be faced to pay billions of euros in back taxes if the European Commission rules against the company. If the deal with Ireland is deemed illegal, Apple will likely face a higher tax burden in the EU in the coming years.

For Vestager, the investigation is just the latest in a string of deep dives into technology company practices. The European competition commissioner, who took over for Joaquin Almunia last year and inherited the tax probees into Apple, Amazon and the othrs, featured prominently last month after announcing her office found Google was abusing its dominant position in the search space. Vestager also said her office would launch an investigation into Google's Android platform to determine whether its dominance in the mobile operating system market is harming competition.