At the center of the complaint is the “Double Irish” loophole, which allowed Apple to funnel profits through two subsidiaries: Apple Sales International and Apple Operations Europe. According to the European Commission, these were companies in name only, and simply existed on paper to "substantially and artificially [lower]” Apple’s tax burden with the European Union.
The European Commission contends that Ireland enabled Apple, allowing it to “pay substantially less tax than other businesses over many years” and in essence gave Apple “a significant advantage over other businesses that are subject to the same national taxation rules.”
The commission goes on to explain:
In fact, the tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market. This is due to Apple's decision to record all sales in Ireland rather than in the countries where the products were sold.
Apple has been engaged in alleged tax evasion since 1991, but efforts to reduce its tax burden have dramatically increased over the past decade. The company had an effective European corporate tax rate of just 1 percent in 2003. However, that rate dropped down to an incredibly low 0.005 percent of Apple Sales International’s profits during 2014.
Irish Finance Minister Michael Noonan denounced the ruling. "The decision leaves me with no choice but to seek cabinet approval to appeal,” said Noonan. “This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation."
Needless to say, Apple is not happy about this ruling either and issued the following statement:
The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process. The Commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money. It will have a profound and harmful effect on investment and job creation in Europe. Apple follows the law and pays all of the taxes we owe wherever we operate. We will appeal and we are confident the decision will be overturned.
In its most recently released earnings report, Apple indicated that it is sitting on $231.5 billion in cash — $215 billion of which is “stuck” overseas. CEO Tim Cook recently commented in a Washington Post interview that those funds would stay overseas until there is “favorable” U.S. tax legislation for companies looking to repatriate foreign funds.
“We’ve said at 40 percent, we’re not going to bring it back until there’s a fair rate. There’s no debate about it," said Cook earlier this month. “It’s not a matter of being patriotic or not patriotic. It doesn’t go that the more you pay, the more patriotic you are.”