Apple's Irish tax bill could top $20 billion: Economist

Apple could face $20B Irish tax bill

Apple's Irish tax bill could top $20 billion if it does not succeed in overturning an European Commission ruling, one expert warned on Wednesday.

On Tuesday, the European Commission, which is the legislative arm of the European Union, ruled that Ireland must recover up to 13 billion euros ($14.5 billion), as well as a sizable interest, in "illegal tax benefits" from the tech giant.

Due to an unusual global tax structure, the iPhone maker's effective tax rate in Ireland was a mere 0.005 percent in 2014.

Independent economist Seamus Coffey told CNBC's "Squawk Box" that the final payment once interest penalties are taken into account, if ever paid, could amount to as much as 10 percent of Ireland's national income. "The European Commission wanted to make a splash," he said.

But Apple's operations in Ireland, where about 6,000 people are employed, do little to contribute to the bulk of the company's profits outside the Americas.

"In Ireland, you don't have substantial Apple profits being generated," said Coffey. "They handle the logistics, administration and the back office stuff. The research and development, manufacturing and key management decisions aren't taking place [in the country]."

The European Commission's ruling was widely criticized on both sides of the pond, but this was not the first instance of authorities looking into Apple's unusual global tax structure.

Three years ago, a U.S. senate investigation found Apple had used offshore entities to transfer assets and profits in order to minimize corporate tax liabilities stateside, including the creation of two subsidiaries in Ireland - Apple Sales International and Apple Operations Europe.

It was these Senate findings that likely gave the European Union the idea to open its investigations into the elaborate tax structures used by many multinationals that contribute to their extraordinary success, according to Daniel Shaviro, a professor of taxation at the New York University's law school.

Shaviro told CNBC's "Squawk Box" that while a large part of Apple's success came from engineers in the West Coast developing new products, much of its profits tended to show up in places where there weren't that many people working for the company.

While experts have known about these practices among large companies, Shaviro said "the public's been increasingly catching on across the world, so I'm not shocked that it's starting to have repercussions."

Coffey said though this ruling is unlikely to have an impact on businesses that are currently invested in Ireland, it would likely make multinationals moving into the country think twice about the kind of pressures they might face.

But for the Irish government, there would be "massive reputational damage."

"[They] have long said there's no special deals available in Ireland, but here and now, you have the European Commission saying a special deal of up to $14.5 billion [in tax breaks] was available."

Apple and the Irish government have said that they will appeal the decision.

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