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Sunday, July 17, 2016

We will soon know if Apple is ordered to pay billions in EU state aid case UPDATED

$19 billion? $8 billion? A few hundred million? Estimates are all over the map regarding the European Commission's imminent decision on whether Apple received illegal, unnotified state aid (subsidies) from Ireland. As I mentioned two years ago, two factors go into the Commission's claim: Ireland's creation of a corporate entity that is taxable nowhere, and the possibility that the company negotiated a tax rate far below the country's already-low 12.5% corporate income tax rate.

As you may remember from earlier posts, if the Commission rules against Apple, the sanction it will impose will be the repayment of the illegal subsidies, with interest. Some estimates of Apple's tax savings are astronomical (the New York Times reported an estimate Apple saved $7.7 billion in 2011 alone), which creates the possibility of an extremely high repayment order. On the other hand, recent cases have seen relatively low repayments, such as the mere 30 million the Commission ordered Starbucks to repay the Netherlands last year. Still, it is perfectly possible that the Commission used smaller cases as a way to establish the legal precedent regarding fiscal aid before dropping the bomb on Apple.

It's worth noting, as reported by Bloomberg, that the largest state aid repayment order ever made was approximately €1.4 billion charged to √Člectricit√© de France, followed by two orders in the €1 billion range. When this decision is announced, we may see a new record by a large margin. Or maybe we won't. Either way, the Commission will be giving us a clear sign regarding how seriously it intends to treat fiscal aid abuses.

Update: For a little perspective on fines, Chillin' Competition (via email) points out that the European Commission has just imposed an anti-trust fine on four truck manufacturers of over 2.9 billion , a new record.

Cross-posted at Angry Bear.

2 comments:

  1. I'll make a bet with you.

    For bragging points only mind.

    Assume that the Commission does find illegal state aid.

    Which won't be about the non-resident company nor the tax rate.

    But my prediction is that assuming guilt then the charge will be €200 million or so and that will be to cover a decade. €20 million a year or so.

    Note that the commission won't say anything at all about Apple having to pay the commission. It might though say that the Irish government should recoup the state aid from Apple.

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  2. Hi Tim, good to hear from you. I'll take your bet. I think the order will be for at least €1 billion. So maybe €300-900 million would then be a tie.

    Yes, to clarify for the readers, a "repayment order" is always paid to the government which granted the state aid. So of course it is true that the Commission won't be saying anything about payments to the Commission, as that is not what happens in state aid cases. It is only in anti-trust cases (cartel, abuse of dominant position, etc.) that a "fine" is possible, which is paid to the European Union.

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