Summarize the below article and give your reasoning. On August 30, 2016, the Eur

Question

Summarize the below article and give your reasoning.

On August 30, 2016, the European Commission (EC) concluded that Ireland and Apple Inc. (Apple) had violated the European Union (EU) state aid rules when Ireland granted tax advantages to Apple; therefore, the EC ordered the Irish government to collect up to €13 billion euros ($15.3 billion U.S. dollars) in tax underpayments from Apple for the 2003 to 2014 period (EC Press Release, 2016). This is the largest sum in history that the EC has ever charged a company with the previous record being set by EDP Energy in 2015 when it was charged €1.4 billion ($1.7 billion U.S. dollars) (Simon-Lewis, 2017).

On October 4, 2017, the EC announced that it was taking Ireland to the European Court of Justice for its failure to collect on the €13 billion euros ($15.3 billion U.S. dollars) of tax due from Apple as a result of the 2016 EC decision. The EC said that Ireland missed the deadline of January 3, 2017 for collecting the tax from Apple and until this tax is recovered, Apple continues to benefit from an unfair advantage. Ireland’s Finance Ministry said that Ireland had never accepted the EC’s analysis in the EC’s decision but was committed to collecting the tax due pending Ireland’s own appeal of the ruling. Apple is also appealing the case (Blenkinsop 2017).

Background

Apple, the world’s largest tech company, was the beneficiary of a deal that enabled it avoid paying any tax on almost all profits in Europe for more than 20 years. The arrangement between Apple and Ireland dates to a 1991 tax ruling, which was replaced by a 2007 ruling. These types of rulings are generally comfort letters designed to provide clarity on tax issues for a business and are normally kept private; however, the EC found out about them while examining the work of a United States Senate subcommittee (Beesley and Barker 2018).

The issue of the EC case centers on the arrangement Apple had with Ireland. In 1991, Apple created the Irish subsidiary of Apple Sales International (ASI), which recorded all of Apple’s profits in Europe, Africa, the Middle East and India. If someone bought a phone in Spain for example, the sale would be recorded by ASI in Ireland, not in Spain. ASI then paid the annual Irish tax rates that were in the range of .005 percent and 1 percent until 2014, according to the agreement between Ireland and Apple. Ireland had one of the lowest corporate tax rates in the European Union (EU) – 12.5 percent – while most of the other EU member states had corporate tax rates of over 16 percent with the Belgium tax rate rising as high as 33.9 percent. According to the EC, ASI paid a lot less than the already low Irish corporate tax rate (Bennedsen and Stabile, 2017).

Conclusion

It is not necessarily clear whether the EC decision is a justified decision. It is noted that the EC did not claim that Apple broke any specific laws of Ireland or the EU; rather, the EC claimed that Apple’s “sweet” deal with Ireland was illegal because the arrangement meant unfair competition and was therefore “state aid.” This leads to the question as to whether the EU has the right to override an agreement that a sovereign nation has made with a corporate entity in order to improve the economy of that nation. On the other hand, there is the question as to whether this “sweet” deal between Apple and Ireland harmed the economies of other nations and whether Apple and Ireland greatly benefitted from a deal at the expense of the global community.

Explanation / Answer

This article is about the European Commission’s (EC) decision to instruct Ireland to recover taxes from Apple Inc. to the tune of $ 15.3 billion dollars which was basically, as per EC, to correct the tax break extended by Ireland to Apple. Although on the face of it, Apple did not do anything wrong legally, the fact that Ireland extended these breaks to Apple when the existing tax rates were already low amounted to “favouritism” and might have harmed other economies at the expense of providing gain to Apple and Ireland.

However this is an example of retrospective taxation and would send a wrong signal to the business community as there would not be any sanctity of any tax break awarded by any sovereign nation in the European Commission. This is because it might so happen that the tax breaks extended may be reversed by a decree of EC and the entire investment by a company may go bad. So this is not a good precedent and any action should happen on prospective bases only wherein the tax advantages are withdrawn from time going forward.

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