13 billion back tax payment: Why Apple had the best laugh in the EU recently

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The ruling is considered an unprecedented success for the EU Commission: in September 2024, the European Court of Justice (ECJ) ordered Apple to pay back taxes of 13 billion euros plus interest to Ireland after years of litigation. The reason: the US company had received "unlawful subsidies" in the member state, which must be repaid. Observers also saw the sensational decision as a significant setback for the world's most valuable company. But all in all, Apple emerged victorious from the dispute, not only thanks to the tricky tax models made possible by Ireland, which have saved the company billions of euros over the years, according to a new analysis.

The foundations for Apple's favorable tax status in Ireland were laid by the company more than 40 years ago, reports Follow the Money (FTM) magazine in its account. In 1980, it opened an office and production facility in Cork, a port city on the south coast of Ireland. Over time, the facility grew into a campus that now serves as Apple's European headquarters and employs more than 6,000 people.

The catalyst: In the late 1990s, Apple founded two Irish subsidiaries – Apple Operations Europe (AOE) and Apple Sales International (ASI). The company granted licenses to both for the sale and distribution of its products and the associated intangible property rights such as patents in Europe. This meant that Apple did not have to pay the then legally prescribed tax of 35 percent on the proceeds of its sales in Europe to the USA.

Double Irish tax savings model

In the period 2003 to 2014 alone, Apple Ireland made at least 100 billion euros in profits during the boom in iPhones and iPods, according to FTM. The company did not pay any tax on this to Ireland at the standard corporation tax rate of 12.5 percent, but only one percent in 2003 and even less in 2014, namely 0.005 percent.

This was due to the special agreement with the Irish tax authorities, which was rejected by the ECJ and first concluded in 1991 and then again in 2007. According to Apple and the Irish tax authorities, Cork was nothing more than a branch of the company that made very little profit. The majority of Apple Ireland's profits between 2003 and 2014 were generated by the other branch of the EU company, explains FTM: the company's so-called actual European headquarters. However, this only existed on paper and did not have an address, staff or offices.

Its surpluses were not taxed in Ireland, according to the report, as the management of this head office did not live and work in Ireland. Irish law at the time stated that the tax authorities did not consider a company to be taxable if the management was located abroad. Apple Ireland was technically considered "stateless" for tax purposes. This enabled the company to massively reduce its liabilities under its variant of the "Double Irish" scheme. In addition, there were US regulations that allowed companies incorporated abroad not to pay US taxes.

Additional tax gift from Trump

This structure, of which IT giants such as Adobe, Amazon, Facebook, Google, IBM, Microsoft, Oracle and Yahoo used their variants. Sometimes combined with a "Dutch sandwich" for licensing technical inventions on Caribbean islands, it is no longer feasible due to changes in US and Irish tax laws.

According to the research, Apple ultimately paid a one-off tax of 17 billion US dollars for profits between 2003 and 2014 in the USA thanks to a tax reduction package from the Trump administration in 2018. An – controversial – additional tax credit of 4.8 billion US dollars is also likely to be deducted from this, meaning that the company effectively had to pay 12.2 billion US dollars in taxes in the USA. In total, Apple paid 26.2 billion US dollars in taxes worldwide over the eleven years.

Advantages over Nokia, Ericsson & Co.

If Apple had not granted the licenses to its two Irish subsidiaries, it would have had to pay up to 38.5 billion US dollars in US taxes during these years, according to FTM's calculations. The levies would also have been due directly when profits were made, rather than many years later, which would have impacted Apple's growth at a crucial time.

At the end of 2018, Apple still had over 230 billion US dollars in cash reserves, writes the magazine. At that time, the Irish back taxes had already been transferred to an escrow account in the EU appeal proceedings and the one-off US tax had been paid. The damage to the group was therefore limited, which "gave it a considerable financial advantage over its European competitors at the time, such as Nokia and Ericsson". These would have paid taxes directly on their profits. Apple stood by its September statement: "We always pay all applicable taxes, no matter where we operate, and there has never been a special arrangement for Apple."

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