European Union regulators released a letter on Tuesday, September 30th, offering further details regarding their recently expanded investigation of Apple Inc. (NASDAQ:AAPL)’s agreements with Irish and other national regulatory authorities. Some sources have said that Apple could be held liable for “billions of euros” in back taxes.
The letter outlined the regulators central argument that Irish tax rulings granted to Apple between 1991 and 2007 “do not comply with the arm’s length principle” of the Organization for Economic Cooperation and Development. The arms length principle is generally invoked in the context of how prices for goods and services are determined between unrelated parties.
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Regulators argue Apple has unfair advantage
In the letter published on the European Commission’s website offering further details on the Apple tax probe, the regulators wrote: “The Commission is of the opinion that through those rulings the Irish authorities confer an advantage on Apple.”
“That advantage is obtained every year and on-going, when the annual tax liability is agreed upon by the tax authorities in view of that ruling,” he letter continued. The letter was first sent to Irish authorities earlier this summer and included details from a 2013 U.S. Senate report that questioned Apple Inc. (NASDAQ:AAPL)’s tax deal with Ireland.
Open-ended agreement inappropriate
The letter also pointed out that tax treatment of an Apple subsidiary located in Ireland was negotiated by the two sides back in 1991, rather than decided by market conditions. They also criticized the fact the agreement was nor revisited even once over a greater than 15 year period.
“This ruling was applied by Apple for fifteen years without revision,” the letter continued. “Even if the initial agreement was considered to correspond to an arm’s length profit allocation … the open-ended duration of the 1991 ruling’s validity calls into question the appropriateness of the method agreed between Irish Revenue and Apple to arrive to that allocation in the latter years of the ruling’s application, given the possible changes to the economic environment and required remuneration levels.”
EU clamping down on “tax sweetener” deals
According to the New York Times, the ongoing Apple Inc. (NASDAQ:AAPL) tax probe is just part of a larger effort by E.U. regulators, where the goal is to minimize countries within the economic bloc from “competing with one another in using tax treatments as a lure to big business.”