The European Commission under Competition Commissioner Margrethe Vestager definitely means business. Today it issued not one but two notices related to ongoing investigations of tech giants Apple and Amazon and how they are not paying what is due in taxes. The result is a doozy.
The EC says that Ireland has failed to collect up to €13 billion in taxes from iPhone maker Apple — roughly $15 billion in today’s currency, and it is therefore now referring the case to the European Court of Justice. And Luxembourg gave e-commerce giant Amazon (which bases its European HQ there) illegal tax benefits worth €250 million — or $294 million in today’s currency. Both are considered illegal state aid in the eyes of the Commission, and it is demanding that the states recover the money from the two companies in question.
Going after the Member States — and not the companies themselves — is an interesting move that was widely reported to be in the works leading up to today — and has been an ongoing issue for years at this point. Indeed some of that is reflected in Vestager’s official statements on the situation.
“Ireland has to recover up to 13 billion euros in illegal State aid from Apple,” she said, referring to this 2016 ruling on the tax issue for the most valuable tech company in the world, which Ireland had appealed. “However, more than one year after the Commission adopted this decision, Ireland has still not recovered the money, also not in part. We of course understand that recovery in certain cases may be more complex than in others, and we are always ready to assist. But Member States need to make sufficient progress to restore competition. That is why we have today decided to refer Ireland to the EU Court for failing to implement our decision.”
And on Luxembourg/Amazon, the tax breaks that the country gave to Amazon were overlooking the company’s profits, she noted.
“Luxembourg gave illegal tax benefits to Amazon. As a result, almost three-quarters of Amazon’s profits were not taxed. In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules,” she said in a statement. “This is illegal under EU State aid rules. Member States cannot give selective tax benefits to multinational groups that are not available to others.”
We have reached out to Apple for comment, and while it has not yet responded, the Irish Department of Finance has issued a statement (in full below), describing the EU’s actions as “wholly unnecessary”.
Amazon has provided the following statement (unsurprisingly) disputing the claims:
“We believe that Amazon did not receive any special treatment from Luxembourg and that we paid tax in full accordance with both Luxembourg and international tax law,” said an Amazon spokesperson. “We will study the Commission’s ruling and consider our legal options, including an appeal. Our 50,000 employees across Europe remain heads-down focused on serving our customers and the hundreds of thousands of small businesses who work with us.”
Part of the reason for hitting the countries is because of the nature of the violations. Countries are accused of overlooking some of this tax evasion in exchange for getting these companies to do business in their territories, because the resulting operations bring jobs and other boosts to the economy. Indeed, in 2015 Apple announced a huge project to build renewable energy data centers, one of them coming in Ireland — timed just as investigations into the tax situation were intensifying.
Europe is in the midst of reforming its sales tax regulations, to close loopholes of the kind that Apple, Amazon and other tech giants (and other large businesses) have been accused of exploiting.
The changes will affect how companies pay taxes on items sold in one country when they are based in another; and new rules will mean that local sales tax rates get applied to transactions even when the company is based in a country with a low sales tax rate.
Some of these changes have started to get implemented gradually and on a temporary basis ahead of the tax reform making them permanent. And in that regard, today’s notices are related to past practices from the two companies.
In the case of Amazon, the fine today relates to an investigation launched in October 2014, which had to do with a tax ruling originally issued by Luxembourg in 2003 and extended in 2011. In that time, Amazon operated two entities in Luxembourg, Amazon EU for operations and Amazon Europe Holding Technologies for tech licensing. This fine is related to how the latter of these collected fees from the former for “licensing”. These fees, in turn, were taken out of Amazon EU’s profits, and it meant that Amazon paid lower taxes on those profits.
Illustration of how this works here:
For Apple, the EC is essentially also acting on past actions: the original fine was levelled in 2016 from an investigation covering several years prior to that. Ireland was supposed to start implementing Apple’s tax payments in January 2017, and as Ireland is appealing the decision and opposes it, it has not paid up. The EC notes that Ireland has been trying to calculate the actual payments due — the fine is “up to €13 billion” — but that investigation is not expected to be completed until March 18 at the earliest.
That investigation will also involve the creation of an escrow fund to try to pay off some of the money owed.
We are still waiting to hear from Apple and also the Luxembourg tax authority, and we will update this as we learn more.
Irish government’s full statement below:
Ireland has never accepted the Commission’s analysis in the Apple State Aid Decision.
However, we have always been clear that the Government is fully committed to ensuring that recovery of the alleged Apple state aid takes place without delay and has committed significant resources to ensuring this is achieved. Ireland fully respects the rule of law in the European Union.
That is why it is extremely disappointing that the Commission has taken action at this time against Ireland.
Irish officials and experts have been engaged in intensive work to ensure that the State complies with all its recovery obligations as soon as possible, and have been in constant contact with the European Commission and Apple on all aspects of this process for over a year.
It is extremely regrettable that the Commission has taken this action, especially in relation to a case with such a large scale recovery amount. Ireland has made significant progress on this complex issue and is close to the establishment of an escrow fund, in compliance with all relevant Irish constitutional and European Union law.
The work on the establishment of the escrow fund to deal with the unprecedented recovery amount will continue, notwithstanding the fact that Commission has taken this wholly unnecessary step.
More to come. Refresh for updates.
Featured Image: kamisoka/iStock