Agreements between Apple Inc. (NASDAQ:AAPL) and Ireland illegal or not?

According to a finding by the European Commission, Apple Inc. (NASDAQ:AAPL) could potentially be asked to pay taxes worth over $8 billion. The company would have to pay taxes of $8 billion as well as interest if Ireland discovered any breached rules in state aid over the tax deal. EC released a report today in which it was found that the tax deals that were made with the Irish in 1990 and 2007 gave an advantage to Apple Inc. (NASDAQ:AAPL). However, this advantage is not compatible with the rules of the European single market.

In the finding report of EC, it was mentioned that State aid was to be provided in favour of Apple Inc. (NASDAQ:AAPL) as a result of the agreements in 1990 and 2007. However, the commission is now doubtful about the compatibility of this aid that was granted under Article 107(1) of TFEU and reminds the Irish that Article 108(3) can cause suspension. The commission also drew the attention of Ireland to Article 14 of Council Regulation according to which any illegal aid can be withdrawn from the grantee.

The tax rate in Ireland is already low according to International standards. In the last year, a report was released by the U.S. Senate which described the tax practices of Apple Inc. (NASDAQ:AAPL). According to this report, the company used its deals with Ireland to shift the $74 billion that it gained from worldwide sales from America all the way to Ireland. The tax rate was negotiated lower than 2%.

The European Commission has the authority to fine companies about 10% of their revenues. This would mean that Apple Inc. (NASDAQ:AAPL) will pay about $17 billion. But, the terms of this legislation suggest that EC is looking to recover the aid.

If there is a corporate income tax of 2% on $74 billion, then that means that Apple Inc. (NASDAQ:AAPL) has paid about $1.48 billion up till now to Ireland. If the company had paid at the state income tax rate of 12.5%, then they would have paid about $9.375 billion to the Irish state by now. This means that the subsidy is approximately $8 billion.

The EC can fine the Irish state around $1.26 billion too. But the Department of Finance of Ireland has clearly denied performing any illegal actions. The Irish state issued a response to EC just this Monday. They said that they are absolutely confident that no rules of state aid were breached in the agreements with Apple Inc. (NASDAQ:AAPL). The state had already issued a formal response for the EC in the beginning of this month. In this response, all concerns and misunderstanding were addressed and discussed in detail.

The European Commission might have made this move as a part of a wider practice to tackle any aggressive tax payment practices. In early September, OECD revealed a historical plan that will help identify those who avoid payment of corporate taxes. It is notable that while Apple Inc. (NASDAQ:AAPL) states that it has not performed illegal transactions, it still believes that reforms are necessary in corporate tax processes.