Apple has agreed to pony up 318 million euro ($347.72 million U.S.) to settle a tax dispute in Italy related to back taxes. The news was first reported by Italian news agency La Republicca.
Apple had been accused of failing to declare income of approximately 880 million euro ($961.97 million U.S.) from 2008 to 2013. Apple initially denied the charges. Just about two weeks ago, in an interview with CBS’ “60 Minutes,” Apple CEO Tim Cook reiterated that “Apple pays every tax dollar we owe,” calling the idea that Apple is avoiding taxes on overseas profits “political crap.”
Despite Cook’s denials, prosecutors have confirmed the La Repubblica report. Milan prosecutor Francesco Greco spearheaded the investigation together with Italy’s tax authority, Agenzia delle Entrate, which allegedly revealed that Apple was shifting profits made in Italy to a subsidiary based in Ireland without paying tax. This arrangement is exactly the same kind of scenario that Apple – as well as companies like Google, Microsoft, and Facebook – has been accused of doing in other countries, including the United States.
In a typical scenario, a parent company may set up a number of subsidiary companies all over the world and move goods, services, and assets from one to another. Those transactions are supposed to be “arm’s length” meaning that the goods, services, and assets are transferred for the same price as they would have between unrelated parties. But that’s not what happens. With a wink and a nudge, transactions are structured in order to shift profits from high tax countries (like Italy or the U.S.) to low tax countries (like Ireland) to cut their tax bills.
The so-called “Double Irish” or, in conjunction with the Netherlands, the “Double Irish and Dutch Sandwich” (which sounds delicious but is frowned upon) has since been declared dead in Ireland. However, countries still allege that companies like Apple and Google used the arrangement to avoid paying tax for a number of years. Investigations have been launched against McDonald’s (in France), Google (also in France), and other multinational companies with Italy hinting that Amazon might be next.
The agreement with Apple could result in an important precedent for those cases pending in other countries.
Earlier this year, the European Commission ruled that “selective tax advantages” granted to Fiat in Luxembourg and to Starbucks in the Netherlands were improper. The Commission has ordered the companies to repay tens of millions of euros in back taxes.
The European Commission is also investigating Ireland’s tax arrangement with Apple. EU Competition Commissioner Margrethe Vestager is expected to release those findings in the new year.
Apple’s stock appeared to fall on the news, closing at 107.32, down 1.42 (1.31%).
