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US-EU Trade Relations Under Strain Over Disputed $14.5 Billion Apple Tax Ruling

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The European Commission has demanded tech giant Apple pay US$ 14.5billion in back taxes after a landmark ruling that the company's "sweetheart deal" with tax authorities in Ireland does not comply with the EU rules on state aid.

The Commission said the Irish tax administration "had a significant degree of discretion in the past. The Commission has concerns that such discretion has been used in the case of Apple to grant a selective advantage to that company, reducing its tax burden below the level it should pay based on a correct application of the tax rules."

The decisions on Apple will have a significant effect on EU-US relations, as the US Treasury issued a stout defense of Apple ahead of the ruling. A US Treasury report said that the Commission had changed its approach to the tax arrangements, classing them as '"State Aid," which is banned under EU rules. 

"[The] Commission is seeking to recover amounts related to tax years prior to the announcement of this new approach-in effect seeking retroactive recoveries. Because the Commission's approach departs from prior practice, it should not be applied retroactively.

"Indeed, it would be inconsistent with EU legal principles to do so. Moreover, imposing retroactive recoveries would undermine the G20's efforts to improve tax certainty and set an undesirable precedent for tax authorities in other countries," the report said.

Margrethe Vestager, the European Commissioner for Competition said:

"The European Commission has today adopted a decision that Apple's tax benefits in Ireland are illegal. Two tax rulings granted by Ireland have artificially reduced Apple's tax burden for over two decades in beach of EU state aid rules. Apple will now have to repay the benefits, worth up to US$14.5 billion plus interest.

"This decision sends a clear message: member states cannot give unfair tax benefits to selected companies no matter if they are European or foreign, large or small, part of a group or not." 

Trade Deal Strain

The heavyweight intervention in EU affairs — amid rising opposition to US firms using aggressive tax measures to reduce their tax bills in EU states — comes at a critical time, as the US is trying to push through the Transatlantic Trade and Investment Partnership (TTIP).

​The strong language in the report backing the US-based companies will be seen by many critics of TTIP as a further sign that the US is using the trade agreement to favor US firms doing business in the EU. There has already been criticism of the US side attempting to water down strict EU standards on food and pharmaceutical safety, the environment and workers' rights.

Both Ireland and Apple have said they will appeal against the Commission's ruling.

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