United States

Apple's influence on international tax policy


A month ago the European Commission (EC) announced that Apple Inc. would have to pay Ireland over $14.5 billion, plus interest, for having received what the EC now considers illegal tax benefits over the past decade. The EC’s ruling instantly resulted in significant media coverage—largely due to the size of the back taxes owed. Both Apple and Ireland stated that they would appeal the ruling, however Ireland’s ultimate decision was not without a heated parliamentary debate.

Since the announcement of the ruling, EC and U.S. tax authorities have staked out their opposing views and even the OECD has entered into the debate. The whole issue has turned into a large game of cat-and-mouse, and the full report has not even been made public yet.

Despite having spent years attacking U.S. multinationals for their offshore tax practices, the U.S. Treasury issued a whitepaper in anticipation of the EC ruling that addressed EC state aid investigations and essentially came to Apple’s defense. However, Treasury’s support of Apple didn’t last long. Within days of the announcement of the ruling, Apple stated that it would bring a significant amount of its vast accumulated foreign earnings back to the United States. Typically, such a repatriation of earnings would be welcome news for U.S. tax authorities. But the Treasury, perhaps suspicious of Apple’s motives, issued Notice 2016-52 as a direct response. The Notice announced Treasury’s intent to publish regulations that would limit the availability of certain foreign tax credits resulting from foreign-initiated adjustments, specifically those resulting from EU state aid investigations.

Apple’s influence on international tax policy extends beyond U.S. policy whitepapers and regulations proposals and into the international debate over Base Erosion and Profit Shifting (BEPS) that has been the focus of modern international tax policy. Some commentators have argued that the EC ruling provided the EC with the opportunity to lay claim to a vast majority of the back taxes Apple would otherwise owe Ireland and that the United States should make a claim. However, if the United States were to make such a claim it might be viewed as a violation of long standing principles of international taxation and transfer pricing much like the EC ruling.

Officials of the OECD have been reluctant to make specific comments on the EC ruling until it is released in full, but they have expressed concern over the retroactive focus of the ruling and how revenue has apparently been reassigned. The OECD has spent a significant amount of effort to further the BEPS project and would not like to see future progress hindered by certain members focusing on perceived violations committed in the past.

Whether Apple will ultimately be compelled to pay back taxes to Ireland will take years to settle. The more interesting question is how the EC ruling, by itself, will impact the BEPS trend towards a more cohesive international tax system. We can better assess the landscape once the EC releases the full text of its ruling. 

Jamison Sites



Areas of focus: Washington National TaxInternational Tax Planning