US says Brussels’ tax probe of Apple is power grab
The US is unleashing a biting attack on the European Commission in a last ditch bid to dissuade Brussels from hitting Apple with a demand for billions of euros in underpaid taxes.
In a sharp escalation of their transatlantic feud, the US Treasury department will take a rare step on Wednesday of warning that Brussels is becoming a “supranational tax authority” that threatens international agreements on tax reform, the Financial Times has learnt.
The criticism comes as the European Commission finalises a probe into an alleged sweetheart tax deal that Ireland gave to Apple, the biggest single case in a crackdown on corporate tax avoidance across the EU. After prolonged delays, a definitive ruling is expected next month.
The Obama administration is stepping up its assault on the probe having failed to deter Brussels earlier this year by arguing publicly that it was setting unfair and “disturbing” precedents and singling out US companies.
In a white paper commissioned by Treasury secretary Jack Lew and seen by the FT, the US touches on sensitivities over Brussels’ accountability by suggesting that the novel legal approach of the directorate leading the probe amounts to a power grab.
“This shift in approach appears to expand the role of the [competition directorate] beyond enforcement of competition and state aid law . . . into that of a supranational tax authority that reviews member state” decisions on corporate tax, it says.
The Obama administration has said little about potential retaliation, but the white paper says “the US Treasury department continues to consider potential responses should the commission continue its present course”.
Earlier this year the Senate finance committee urged Mr Lew to consider imposing a double tax rate on European companies if the commission directed Apple to pay back-taxes in Ireland.
Margrethe Vestager, EU competition commissioner, has already directed the Netherlands to recover €20m to €30m in back taxes from Starbucks. Luxembourg must recover a similar amount from Fiat Chrysler Automobiles and investigations continue into the retailer Amazon.
But the Apple case is much larger, as the underpaid tax could run to billions of euros if the commission rules against Ireland. JPMorgan, investment banker to Apple, has said the company could be on the hook for $19bn in a worst-case scenario.
The Treasury department says the “commission’s pursuit of retroactive recoveries is not only in tension with the G20’s efforts to emphasise tax certainty, but also sets an undesirable precedent that could lead to other tax authorities . . . [seeking] large and punitive retroactive recoveries from both US and EU companies”.
The Irish authorities and Apple are bracing for an adverse ruling, which they would challenge in the European courts. Each has denied that tax rulings issued by Dublin conferred a selective advantage to Apple.
Tim Cook, Apple’s chief executive, has insisted that the company complied fully with tax law and did not do anything wrong. This month he told the Washington Post that if Apple did not get a “fair hearing” in Brussels “then we would obviously appeal it”.
The Apple probe, which began in mid-2013, centres on "transfer pricing”, a practice by which companies move profits to low-tax jurisdictions through internal transactions.
The OECD club of rich countries has developed its own guidelines on aggressive transfer-pricing arrangements, and Treasury says the commission’s approach conflicts with them.
“In contrast to the OECD [guidelines], no country will have played a role in developing the commission’s guidance, which also would not be incorporated into bilateral tax treaties between the United States and [EU] member states,” the Treasury paper says.
It notes that the tax authorities in the US and EU member states have “entire departments whose sole responsibility is to examine transfer pricing issues”, while pointedly referring to the commission as a “non-tax agency”.
By taking the side of American companies, Mr Lew has drawn criticism from US anti-avoidance campaigners who say he should be standing up to businesses trying to escape US taxes.
The US’s earlier lobbying efforts included trips to Brussels by Robert Stack, the Treasury official in charge of international tax policy, and a public letter in February from Mr Lew to Jean-Claude Juncker, the commission president.