Apple threatens to cut jobs following tax ruling

The company says it may cut jobs in Europe after an EU ruling that ordered it to pay R200bn in tax.

Picture: AFP.

LONDON - Apple is threatening to cut jobs and investment in Europe after an EU ruling that ordered it to pay R200 billion in tax.

The biggest tax bill ever imposed outside the US is the result of the European Commission's three-year investigation into Apple's deal with Ireland, which found it amounted to illegal state aid.

The report says that for over a decade, Apple paid a very low Irish tax rate on most of its profits outside the US before sending it to a tax haven where it paid no tax at all.

The report also says this arrangement was illegal.

Ireland says it doesn't want the fine to be paid to them, even though it's the equivalent of R43,000 for each resident. Both Ireland and Apple will appeal.

The US Treasury has warned Brussels not to pursue American companies, but McDonald's, Google and Amazon could be next.

Apple Inc licenses the rights to technology designed in the United States to Irish subsidiaries. These then hire contract manufacturers to make devices which they sell to Apple retail subsidiaries around Europe and Asia.

Since the manufacturing cost is a small portion of device sales prices and retail subsidiaries are allocated a small operating margin, Apple Ireland is very profitable. In 2011, it earned $22 billion after paying $2 billion to its US parent in relation to the rights to Apple intellectual property.

However, the Irish tax authority agreed only 50 million euros of this was taxable in Ireland, the European Commission said. Under the terms of Apple's tax deal, first agreed in 1991 and renewed in 2007, Apple could allocate most of the profits earned by its Irish operating units to a "head office" that did not have any employees or own any premises.

"This 'head office' had no operating capacity to handle and manage the distribution business, or any other substantive business for that matter," the Commission said.

The Commission said this agreement had no basis in tax law and was not available to others, and so represented state aid.

Irish Finance Minister Michael Noonan said he profoundly disagreed with the decision and in order to preserve Ireland's attractiveness for investment he would appeal.

"There is no economic basis for this decision. It's bizarre and it's an exercise in politics by the Competition Commission," Noonan said.

"They don't have responsibility for taxes and they are opening a back door through state aid to influence tax policy in European countries when the European treaties say tax policy is a matter for sovereign governments," he added.

Ireland's low corporate tax rate has been a cornerstone of the country's economic policy for decades, drawing investors from multinational companies whose staff account for almost one in 10 of the country's workers.

For many technology firms like Google and Facebook, a key attraction is that Ireland allows companies to adopt tax structures which see them pay much less than the 12.5 percent headline rate. The companies say they follow all tax rules.

Apple said it was confident of winning an appeal.

Additional reporting by Reuters.