Apple facing record bill for Irish tax

Apple could be ordered to pay billions of euros in back taxes in the Republic of Ireland by European Union competition officials.

The final ruling, expected on Tuesday, follows a three-year probe into Apple's Irish tax affairs, which the EU has previously identified as illegal.

The Financial Times reports that the bill will be for billions of euros, making it Europe's biggest tax penalty.

Apple and the Irish government are likely to appeal against the ruling.

Under EU law, national tax authorities are not allowed to give tax benefits to selected companies - which the EU would consider to be illegal state aid.

According to EU authorities, rulings made by the Irish government in 1991 and 2007 allowed Apple to minimise its tax bill in Ireland.

EU competition chief Margrethe Vestager is leading the probe into Apple's tax affairs

Apple's company structure enabled it to legally channel international sales through Ireland to take advantage of that tax deal.

On Tuesday EU competition commissioner Margrethe Vestager is expected to give an estimate of how much Apple will have to pay back.

But it will be up to Irish authorities to calculate the exact amount.

US warning

The investigation into Apple and similar probes into other US firms have been criticised by US authorities.

Last week the US Treasury Department said the European Commission was in danger of becoming a "supra-national tax authority" overriding the tax codes of its member states.

Brussels was using a different set of criteria to judge cases involving US companies, the US Treasury warned, adding that potential penalties were "deeply troubling".

BBC North America technology reporter Dave Lee says that the US Treasury is concerned that if there is a big EU tax bill for Apple, as expected, then Apple will offset at least some of that against the tax it would be paying in the US.

"So it's essentially shifting billions of dollars from the US economy, from the US tax-pot, into Europe. The US says Europe simply doesn't deserve that money, because all the hard work that goes into creating the iPhone and other Apple products... takes place in the US, and not in Europe."

Apple is not the only company that has been targeted for securing favourable tax deals in the European Union.

Last year, the commission told the Netherlands to recover as much as €30m (£25.6m) from Starbucks and Luxembourg was ordered to claw back a similar amount from Fiat.

Apple is potentially facing a much bigger bill, but with cash reserves of more than $200bn (£153bn), the company will have little problem paying up.

Nevertheless, Apple may have to restate its accounts following the ruling.

Apple currently has a stock market value of around $600bn

Analysis: Dominic O'Connell, Today business presenter

The current focus is on the size of the bill - how much the European Commission thinks Apple should pay Ireland in back taxes. That will be big enough, but there are even larger issues at stake, including one fundamental question - who really runs the world, governments or giant corporations?

At present, it is difficult to tell. Individual governments appear impotent in their attempts to apply their tax laws to multinationals like Apple. They have systems designed to deal with the movement and sale of physical goods, systems that are useless when companies derive their profits from the sale of services and the exploitation of intellectual property.

In Apple's case, 90% of its foreign profits are legally channelled to Ireland, and then to subsidiaries which have no tax residence. At the same time, countries can scarcely afford not to co-operate when Apple comes calling; it has a stock market value of $600bn, and the attraction of the jobs it can create and the extra inward investment its favours can bring are too much for most politicians to resist.

There is an echo here of the tycoons of the early 20th Century who bestrode America. Andrew Carnegie, Cornelius Vanderbilt and John Rockefeller were judged so powerful that they were almost above the law, something that successive US administrations sought to curb.

The European Commission's attempt to bring Apple to heel is on the surface about tax, but in the end about the power of the multinational and the power of the state. There is more to come; Margarethe Vestager, the Danish commissioner who is leading the charge against Apple, is warming up to take on Google.

Europe versus the giants of corporate America will be a battle royale, and one that will run and run.