It looks like this week’s Apple “xxx-gate” is a big one with the Financial Times reporting that the European Commision is about to come down hard on Apple for its long held tax avoidance strategies in Ireland.

Typically the EU has used its state aid powers to address broader competition issues. But in the past year Brussels has attempted to target the tax affairs of companies such as Apple, Starbucks and Amazon. It is a novel application of the law with far-reaching implications, not just for the companies, or EU countries, but for EU-US relations in general.

This week the European Commission will publish the first findings in the Apple case. The details – including evidence from bygone tax negotiations – are likely to be explosive.

The US is no happier with Apple’s use of specially created Irish tax loopholes which allow it to avoid paying taxes it would otherwise be due. Apple CEO Tim Cook and other execs faced Senate Subcommittee questioning in May in which focused on Apple’s tax avoidance schemes.

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Did Apple apply pressure to Irish authorities in 1991 and again in 2007 when negotiating tax deals and if so were these illegal competitive measures that gave Apple advantages over competitors? Luca Maestri, Apple’s finance chief, of course denies any wrongdoing…

“If countries change the tax laws, we will abide by the new laws and we will pay taxes according to those laws,” Maestri is quoted as saying.

In August, Apple started campaigning hard on its benefits to Europe saying it had created 629,000 jobs on the continent, many from the App Store.

Apple’s rebuttal falls into two major categories:

  1. The commission’s attempt to retrospectively apply international guidelines on taxing branches of multinationals is misleading and wrong. The OECD rules only came into force in 2010, and have yet to be adopted by Ireland.
  2. Apple argues the rates agreed with Irish authorities are appropriate. It hopes to show its tax bills were a measure of the profits attributable to its Irish subsidiaries and within a similar profit range to comparable companies.

Maestri said that Apple plans to stay in Ireland no matter what the outcome of the investigation yields.

Perhaps a little irony here: If Ireland is found to have made special deals with Apple, it stands to make a great windfall of money from the fines and new taxes levied on Apple.

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Seth Weintraub

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