Apple Inc. (NASDAQ:AAPL) might be charged by the European Commission for taking advantage of illegal tax breaks from the Irish state. An investigation that was launched last year by the United States Senate to this effect has revealed that Apple, with approval from the Irish government, has been paying a lower corporate tax by employing subsidiaries as a conduit through which it conducted its overseas sales. The European Commission’s probe into the matter revealed that the company had been enjoying illicit aid for over two decades.
Apple denies accusations
Ireland’s corporate tax rate of 12.5%, which has been viewed cynically by member countries of the European Union, makes the country an attractive option for corporate such as Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR) looking to set shop in the continent.
The iPhone manufacturer’s European headquarters is situated in the Irish city of Cork and currently has a workforce of 4000 employees. Both Ireland and Apple Inc. (NASDAQ:AAPL) deny any accusation of the latter receiving illegal breaks from the former.
Tax avoidance by multinationals
Several multinational companies such as Apple Inc. (NASDAQ:AAPL) are being suspected of tax evasion by making use of multiple subsidiaries. One of these subsidiaries, located in a tax haven, receives payment from another subsidiary, located in a higher tax country. By employing this maneuver, dubbed as the ‘Double Irish’, the corporation avoids paying a higher tax on the overall profits.
The Organization for Economic Co-operation and Development (OECD), which pointed out the existence of this illegal tax dodge, has started putting in place efforts to cut down on this practice. Ireland has hinted that legal loopholes such as the one stated above will be closed.
One method to achieve this, as suggested by several countries of the OECD, would be to mandate that companies increase transparency while reporting profits.