Apple Eurozone Tax 348 million
If there was any doubt regarding the changing international tax landscape, Apple became among the first of what is sure to be many multi-national enterprises to enter into a multi-million dollar tax settlement related to its European operations. Italy’s La Republicca announced last week that Apple has agreed to pay the Italian tax authority 318 million euro (US $348 million) to settle a tax controversy related to its 2008-2013 tax years. The settlement relates to payments made from Apple’s “high tax” Italian subsidiary to its “low tax” Irish subsidiary. Click here for the original story in La Republicca and here for the English report in Reuters. As part of the settlement, it was reported that Apple will enter into an advance agreement with the Italian tax authorities for future years.
While details of the underlying issues were not disclosed, transfer pricing likely played an important role in negotiations. It was reported that Apple recorded more than 1 billion euro in revenue in Italy, but only paid 30 million euro in Italian tax. Payments made from the Italian operating subsidiary to Apple’s Irish headquarters company shifted the majority of the profit from high-taxed Italy to low-taxed Ireland. Apparently Italy was successful in challenging whether those payments were at “arm’s length.”
And this is just the beginning. Countries have barely begun implementing new rules consistent with the October Base Erosion and Profit Shifting (“BEPS”) Project released by the OECD. The rules will increase the transparency of related company profit shifting payments. Once fully implemented, tax authorities in the paying and receiving countries will receive a clear, simply road map to these transactions. This road map will allow them to quickly and easily analyze related company profit shifting payments and determine if a further investigation, audit or assessment is warranted.
Multi-national enterprises must act now to get in front of these fresh challenges.
ValueScope is uniquely positioned to assist companies with everything from an initial risk assessment to the development and documentation of new/adjusted transfer prices.