Apple Ruling Brings U.S.-European Tax Tensions to Boil
Months of simmering tension between the Obama Administration and European officials boiled over Tuesday when the European Commission ordered Apple
The EC found that Ireland granted illegal tax benefits to the American technology giant.
Tuesday's order was expected for months—the EC has been formally investigating Apple's tax deal with Ireland since June 2014 had already signaled that Apple could face a tax bill as high as $19 billion.
Since February U.S. officials had been publicly pressuring European Commissioner Margrethe Vestager, the continent's top competition official, to rethink the looming penalty. Treasury Secretary Jack Lew warned in a letter to her that an action against Apple, as well at those already taken against Starbucks
The issue of tax avoidance by multinational corporations is highly controversial on both sides of the Atlantic. According to Oxfam America, roughly 50 U.S.-based multinationals are believed to hold at least $1.3 trillion in offshore cash, largely to shield the money from the high U.S. corporate tax rate. Some estimates place the cash hoard at $2 trillion. Many large U.S. firms have nearly all their cash holdings offshore, according to Moody's Investors Service. The top five hold a total of $480 billion offshore, according to mid-2016 numbers prepared by Moody's.
Individually the numbers break down this way: Apple, $215 billion; Microsoft
Lew on Wednesday questioned the EC's motivations for pursuing the investigations. "I have been concerned that it reflected an attempt to reach into the U.S. tax base to tax income that ought to be taxed in the United States," Lew said at a Brookings Institution event in Washington as he prepared to leave for a meeting of the world's 20 leading economies in China.
On Tuesday a U.S. Treasury Department spokesman also criticized the EC's action. "Treasury is disappointed that the commission is acting unilaterally and departing from the important progress the U.S., the EU, and the rest of the international community have made together to combat tax avoidance."
The spokesman also characterized the action against Apple, Starbucks and Fiat as "retroactive tax assessments" based on a new interpretation of EC rules. The commission's actions "are unfair, contrary to well-established legal principles, and call into question the tax rules of individual member states."
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