Apple (NASDAQ:AAPL) CEO Tim Cook has announced intentions to appeal the $14.5 billion tax assessment levied against his company by the European Commission. The commission ruled that Apple received an unlawful subsidy from Ireland in the form of a preferential tax deal. Apple’s unusual tax structure involved companies which are tax resident nowhere and resulted in a tax rate of less than 1 percent. The Irish government is still considering whether to launch its own separate appeal.
The commission has recently turned its focus to tax laws introduced by member countries that have an obvious aim of attracting investment and jobs by reducing tax bills for multinational corporations. The Commission has been investigating whether tax authorities in member countries were being too generous in their application of accepted tax principles. Some member states have allegedly allowed companies to shift profits into untaxed subsidiaries by approving inappropriate transfer prices.
The Court of Justice of the European Union (ECJ), Europe’s highest court, will hear any appeal by Apple. The court usually backs the Commission, but sometimes disagrees in state aid cases. If the court backs the Commission, hundreds of other complex tax arrangements used by U.S. companies to minimize taxes on European sales could also be challenged.
A spokeswoman for the court said political considerations do not come into its decisions. Margrethe Vestager, European Competition Commissioner, said in a statement, “I don’t think the courts will hear any kind of political opinions or feelings or what’s in your stomach or whatever. They want the facts of the case.”
Cook said in his statement that he was confident the decision would be reversed. The EU judges dealing with any Apple appeal would focus on whether the European Commission’s rejection of Ireland’s view of transfer pricing strays too far into dictating national tax policy. EU law says only governments can approve a harmonization of tax systems. However, France and Germany have voiced support for the Apple ruling.
The Commission has also been investigating tax transfer pricing at Fiat, McDonald’s, Starbucks, and Amazon. The companies and the countries affected all deny special treatment was given. Last year, the European Commission published a list of six tax rulings and 59 similar measures it had challenged on the basis of state aid rules. It was successful in almost all of the cases.
Some lawyers say the Commission’s rulings will prompt a major spat with the United States. Last week, the U.S. Treasury issued a detailed paper denouncing the investigation and warning of dire implications should the commission rule against Apple.