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Apple’s Day of Reckoning Comes With Billion-Euro Tax Risk

  • Appeals expected from Ireland and Apple in state-aid case
  • Finding will be closely watched for effects on other companies

The European Union is expected to conclude Tuesday that Ireland provided Apple Inc. with illegal aid through a favorable tax arrangement, a decision that may cost the iPhone maker billions of euros and stir concern among hundreds of other companies.

The European Commission’s anticipated announcement that Ireland’s deal for Apple violated the union’s state-aid rules, which was described by people familiar with the situation, will exacerbate tensions between the EU and the U.S. Treasury Department. Treasury officials have complained that European regulators are unfairly targeting U.S. firms and threatening global tax reforms.

The precise dollar amount that Apple will be asked to repay to Ireland remains unclear. The commission may provide guidance and leave a final determination to Ireland, which already has said it would fight an adverse finding. Analysts have provided a range of estimates. In a worst-case scenario, if Ireland loses an appeal and is forced to collect, Apple may face a $19 billion bill, according to JPMorgan Chase & Co.’s Rod Hall.

Comparable Rulings

The finding, which comes after a probe that began more than two years ago, will be closely watched among international tax lawyers and specialists; its wording will determine its broader implications, said Stephen Shay, a Harvard Law School lecturer and a former senior Treasury official. One key question will be whether Ireland gave comparable rulings to other companies that have subsidiaries there.

“Surely other companies could be affected, but we don’t know,” Shay said.

Cupertino, California-based Apple said it had nothing to add to previous statements in which it rejected suggestions that it received selective treatment from Irish officials. Officials with the Irish Finance Ministry, who have previously said Apple received no special treatment, declined to comment Monday, as did EC officials.

In preliminary findings in 2014, European competition authorities said Apple’s tax arrangements were improperly designed to give the company a financial boost in return for creating jobs in Ireland.

Two Rulings

The investigation...