Apple Inc and EU competition watchdogs clashed on a public stage for the first time since regulators ordered Ireland to claw back a record-breaking 13 billion euros (US$13.86 billion) in back taxes from the iPhone maker.
The EU’s August decision is “seriously flawed” and implies Apple products, such as its best-selling smartphones, are designed in Cork, Ireland, rather than in the US, a lawyer for the California-based tech giant said during a state aid conference in Copenhagen on Friday.
An EU official hit back, saying the company was creating a “very nice tax story.”
“There are great products in Ireland, but it’s not the iPhone,” said Andreas von Bonin, an attorney for Apple at Freshfields Bruckhaus Deringer LLP. “The iPhone is a US product and not an Irish product.”
The EU’s conclusion is not in line with “reality,” he added.
In an order that reverberated across the Atlantic, the EU slapped Apple with the multibillion-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 US Department of the Treasury said the EU was making itself a “supranational tax authority” that could threaten global tax reform efforts.
The EU decision focused on how Apple allocated almost all its European sales profits to what the regulator said was a head office not subject to tax.
“The value creation happens in the US, the distribution logistics happen in Ireland,” Von Bonin said. “Therefore, under the international tax rules, the profit should be attributed to the US and the profit should be attributed to the US parts of” the Irish units.
Apple is “creating a very nice tax story,” said Karl Soukup, a director in the European Commission’s Directorate-General for Competition. “It’s about fog and creating perceptions,” but what Apple is doing is “mixing up Apple Inc and the head office” of the Irish units as if they were one.
“There’s one story, but I think it doesn’t really hold,” Soukup said, adding that this is made clear in the commission’s written decision.
For the commission, Apple “is one thing” and the Irish units and their head office are another, he added.
“When we started to look into this head office, what we found is that this head office in fact does not exist. There is no address, there are no employees, there are no premises, there are in fact no real activities,” Soukup said. “The only thing which exists are the minutes of the board meetings.”
The commission has looked in detail at these minutes and concluded that board members were granting “proxies to lawyers to confirm the annual accounts, to fix the yearly dividends and to give the cash management to an external company,” but “nothing in these minutes suggests that this head office would have discussed anything which would have really to do with managing the operations of Apple in Europe,” Soukup said.
Ireland last month filed its appeal against the EU decision after Irish Minister of Finance Michael Noonan repeatedly said that the country “fundamentally disagrees” with the commission’s analysis and was left with no choice than to go to court.
The EU General Court in Luxembourg is not likely to come to very quick decisions, Marc van der Woude, one of the court’s judges, said last month.
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