Apple warns of 'material' tax payments from EU's Irish tax investigation
By Michael Hennigan, Finfacts founder and editor
Apr 30, 2015 - 7:28 AM

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Apple warned on Tuesday that it may be forced to pay tax to Ireland on up to 10 years of profits if the European Commission issues an adverse finding following its current investigation of Irish tax rulings that were issued to the American tech giant.

Apple on Monday posted quarterly revenue of $58bn and quarterly net profit of $13.6bn, or $2.33 per diluted share.

In its regular 10-Q filing with the Securities and Exchange Commission, Apple said:

On June 11, 2014, the European Commission issued an opening decision initiating a formal investigation against Ireland for alleged state aid to the Company. The opening decision concerns the allocation of profits for taxation purposes of the Irish branches of two subsidiaries of the Company. The Company believes the European Commission’s assertions are without merit. If the European Commission were to conclude against Ireland, the European Commission could require Ireland to recover from the Company past taxes covering a period of up to 10 years reflective of the disallowed state aid. While such amount could be material, as of March 28, 2015 the Company is unable to estimate the impact."

The Wall Street Journal says that the SEC doesn't have a clear rule on what makes something “material.” Some securities lawyers consider it to be 5% of average annual pretax profits for the past three years; others define “material” as anything that an investor may want to know — this could exceed $2.5bn, according to FT calculations.

European Union regulators opened a formal tax investigation against Ireland last year, questioning the method it used to calculate taxes payable by two Apple subsidiaries, Apple Operations Europe and Apple Sales International.

This month the Australian Parliament has been holding hearings on Apple Australia's tax situation.

The Sydney Morning Herald reported that Antony Ting, an associate professor of taxation law at Sydney University, said Apple's international tax structure is much like its products — relatively simple compared to its competitors'.

"From the iMac in 1998 and the iPod in 2001 to the more recent iPhone in 2007 and iPad in 2010, they often set the standard for the product category," Ting wrote in a paper called iTax Apple's International Tax Structure and the Double Non-Taxation Issue.

"In the tax world, Apple has also proved to be equally creative and bold. An unusual feature of its tax structure is its relative simplicity: it does not rely on the Double Irish Dutch Sandwich structure that has been commonly used by other US multinationals. Nevertheless, it is highly effective in achieving the goal of tax avoidance.

"From 2009 to 2012, Apple's international tax structure successfully sheltered $US44bn from taxation anywhere in the world [including from sales generated in Australia]."

Apple's principal Irish company became stateless for tax purposes from 2006

Apple's foreign tax rate tumbled after 2007 Irish 'advanced opinion'

US company profits per Irish employee at $970,000; Tax paid in Ireland at $25,000

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