The EU's assault on Apple

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Sorry, Apple: "The jig is up," said Michael Hiltzik at the Los Angeles Times. After years of "playing international tax rules like an orchestra," the technology giant has been ordered by European regulators to pay Ireland $14.5 billion in back taxes, plus interest. The European Union says Apple struck an illegal sweetheart deal with Dublin to pay as little as 0.005 percent in corporate taxes between 2003 and 2014. For Apple, the bill itself is chump change: The company could easily settle the tab with some of its $215 billion in overseas cash reserves. Of greater concern is that EU regulators appear determined to stop "U.S.-based international tax dodgers" from manipulating the Continent's loophole-ridden tax system. As one corporate tax expert put it, the EU just served notice that "the easy days of single-digit tax rates are going to be over."

Apple's tax arrangement with Ireland was very strange indeed, said Adam Davidson at The New Yorker. The company took advantage of quirks in the corporate tax codes of both Ireland and the U.S., funneling its European profits through a kind of "quantum corporation" that technically didn't exist in either country. The subsidiary, dubbed Apple Operations Inc., was incorporated in Ireland, so it couldn't be taxed under U.S. law. But because it didn't meet Ireland's residency requirements — it had no employees and no physical address — it couldn't be taxed under Irish law, either. Ireland "enthusiastically" encouraged Apple's creative accounting because the company employs nearly 6,000 people in Cork through yet another subsidiary; in the U.S., that would be the equivalent of 420,000 high-paying jobs. Perhaps that's why Ireland has spurned the huge tax windfall (which would pay for the country's entire health-care budget) and taken Apple's side.

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"American lawmakers have for years been assailing U.S. companies for dodging taxes with overseas maneuvers," said Alan Rappeport at The New York Times. It's ironic, then, that many of those same lawmakers are now furious with EU regulators for "overstepping their authority." Their calculation? The tax money the EU wants to extract from Apple should be going to the U.S. Treasury instead — "not that lawmakers have figured out how to make that happen." U.S. firms had $1.2 trillion in cash overseas at the end of last year, beyond the reach of the IRS, said Simon Bowers at The Guardian. Washington has dragged its feet getting corporate America to bring those profits home. But lawmakers just woke to the realization that "if America is unwilling to tax the ballooning offshore cash mountains of its leading companies, others are now emboldened to do so."

The EU's assault on Apple "is wrong," said The Economist. Regulators are undermining Ireland's sovereignty, while reinterpreting laws to strike down deals that were made 25 years ago. They're also breaking ranks with the U.S. "at a time when big economies are meant to be coordinating their anti-avoidance tax rules." The U.S. is already hinting darkly at retaliation, branding the move "a naked tax raid." Perhaps the optimists are right that this will spur the U.S. to reform its "barmy tax code." But that seems unlikely. The EU "has lobbed a grenade; a tax war may result."