Apple and Ireland Claim EU Kept Them in Dark About Tax Problem

Apple and Ireland Claim EU Kept Them in Dark About Tax Problem
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Apple Inc. and Ireland are preparing appeals to argue that European Union competition investigators unfairly kept them in the dark during a probe that ended in a record 13 billion-euro ($14.6 billion) tax bill, people with knowledge of their case say, according to Bloomberg.

As they weigh their court challenges, the pair contend that the EU neglected to flag a shift in emphasis in the investigation, according to the people, who spoke on condition of anonymity. Their appeals would be reminiscent of Intel Corp.’s complaint that the EU trampled on its rights in a separate probe nearly a decade ago.

EU Competition Commissioner Margrethe Vestager’s team insists there was never a U-turn and that it kept Apple and Ireland up to date with developments from the time the probe was opened in 2014 through Aug. 30 -- when Ireland was ordered to claw back the proceeds of alleged sweetheart tax deals.

“The defender, the member state, has the right to know exactly what are the objections and if the objections change,“ said Jacques Derenne, a Brussels-based lawyer at Sheppard, Mullin, Richter & Hampton LLP. “If it’s confirmed that the final decision addresses issues, facts and even legal interpretations that have not been discussed with the member state, there is a problem.“

In an order that reverberated across the Atlantic, the EU slapped Apple with the multi-billion euro bill, saying Ireland granted unfair deals that reduced the company’s effective corporate tax rate to as little as 0.005 percent in 2014. The U.S. Treasury hit back, saying the EU was making itself a "supra-national tax authority" that could threaten global tax reform efforts.

The 0.005 percent figure cited by the commission is “extremely misleading and deceptive,“ Apple said in a note to investors this month. “We paid $400 million in corporate income taxes in Ireland in 2014 -- considerably more than the commission’s figure suggests.“

But during the Apple case, scrutiny of the company’s tax affairs in Ireland appeared to shift from so-called transfer pricing arrangements on transactions between units which are used to calculate taxable profit, according to the people familiar with the investigation.

The final decision focused on how Apple allocated almost all its European sales profits to what the EU said were “head offices“ not subject to tax. Transfer pricing wasn’t mentioned in last month’s press release.

Apple says none of its units was ever exempt from tax -- and that under the law they are subject to deferred U.S. tax.

While the commission denies a change in approach occurred, Apple and the Irish government were rebuffed repeatedly when they sought fuller information on the supposed U-turn, the people said.