Washington warns of strain on EU economic relationship after Apple ruling

Reuters , Tuesday 30 Aug 2016

Apple Operations International, a subsidiary of Apple Inc, is seen in Hollyhill, Cork, in the south of Ireland August 30, 2016 (Photo: Reuters)

A European Commission order requiring Apple Inc (AAPL.O) to pay $13 billion euros ($14.5 billion) in taxes on Tuesday drew swift and angry rebukes from the Obama administration and lawmakers in Congress, while re-igniting calls for international tax reform.

The U.S. Treasury Department, which enforces federal tax policy, warned that U.S.-EU economic relations could be affected by the stunning decision by the European Commission. Critics in Congress denounced the move as a predatory money grab that would encroach on U.S. government jurisdiction and ultimately add to the federal deficit.

The Treasury had previously warned that making U.S. companies pay back taxes in Europe could hit the United States' own coffers because tax payments overseas can be deducted against U.S. taxes.

But it was not clear what Washington could do to counter the regulatory order, which ruled that Apple had received illegal state aid under its tax agreement with Ireland and must pay back the taxes plus interest.

Analysts said the move could add a compelling new dimension to the tax reform debate surrounding the treatment of more than $2.1 trillion in U.S. corporate profits held offshore to avoid U.S. taxes.

"The European Commission's decision is a predatory and naked tax grab," U.S. Representative Kevin Brady, chairman of the House Ways and Means Committee, fumed in a statement.

The sum is 40 times bigger than the previous known demand by the European Commission. Online retailer Amazon.com Inc (AMZN.O) and fast-food company McDonald's Corp (MCD.N) face probes over taxes in Luxembourg, while coffee chain Starbucks Corp (SBUX.O) has been ordered to pay up to 30 million euros ($33 million) to the Dutch government.

Apple and Ireland said they would appeal the decision.

A Treasury representative said on Tuesday that the ruling could "threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the U.S. and the EU."

Senate Finance Committee Chairman Orrin Hatch said lawmakers would examine the EU decision but warned that it was inconsistent with international standards.

"It appears the European Commission has issued an extraordinary decision that targets U.S. business by rewriting already existing tax policies," the Republican said in a statement.

Senator Charles Schumer, the chamber's No. 3 Democrat, called the move "a cheap money grab."

"The EU is unfairly undermining our ability to compete economically in Europe while grabbing tax revenues that should go toward investment here in the United States," he said.

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