Apple Will Reportedly Be Hit With a Record-Breaking Tax Penalty

August 29, 2016, 6:23 PM UTC
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Apple (AAPL) will reportedly be hit with a record-breaking tax penalty in the European Union on Tuesday amid a crackdown by regulators there on companies funneling profits through Ireland to avoid bigger tax bills.

Two year ago, the European Commission launched probes into the corporate taxation of companies in three countries: Apple in Ireland, Starbucks (SBUX) in the Netherlands, and Fiat (FCAU) Finance and Trade in Luxembourg. It subsequently also initiated investigations into Luxembourg’s tax deals with Amazon (AMZN) and McDonald’s (MCD).

Competition commissioner Margrethe Vestager already decided last year that the Fiat and Starbucks tax deals were illegal because they allowed the companies to underpay and therefore get unfair competitive advantages over their rivals. Each were told to pay back $22 million to $34 million.

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Now it’s Apple’s turn. According to the Financial Times, Vestager’s department will hit the tech firm with Europe’s largest-ever penalty in a tax case.

How much Apple would have to pay is unclear. But JP Morgan recently suggested the bill could be as high as $19 billion while others have pegged the number at around $8 billion.

Reuters is reporting that the sum will be in excess of $1 billion.

It’s certainly going to be a lot of money, and Apple and Ireland are both very likely to appeal. The Irish government said Monday that it needed to defend its “international reputation” against the suggestion that it granted illegal aid to Apple. The Netherlands has also appealed in the Starbucks case, and so have both Luxembourg and Fiat in their case.

The U.S. Treasury last week voiced preemptive outrage over the Apple case by claiming that the European Commission was trying to be a “supra-national tax authority.”

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The Apple-Ireland tax deals in question were struck in 1991 and 2007. Apple denies it got special treatment, but hearings in the U.S. Senate have already established that its Irish subsidiaries paid 2% or less in taxes on its profits. The standard Irish corporate tax rate is 12.5%.

At the end of last year, Apple agreed to pay the Italian authorities back-taxes of around $350 million.

Apple co-founder Steve Wozniak has argued that the company should pay more tax, and has suggested that a 50% rate would be fair.