Her Majesty’s Revenue and Customs has ordered American tech giant Apple to pay an additional £137 million following an audit of the company’s UK operations up until 2015.
This additional payment comes in the form of interest on unpaid taxes and a corporate income tax adjustment to cover for an increase in the company’s activities in the UK.
The UK tax authorities did not share any further details on this arrangement.
However, The Financial Times reports that “HMRC is thought to have argued that the [Apple] subsidiary, which performs marketing services for an Irish sister company, had not received a large enough commission on the sales it helped secure.”
A spokesman for HMRC said, “We do not comment on the tax affairs of individual companies. Multinational companies must pay all taxes due and we don’t settle for less. Last year alone, HMRC secured and protected over £8bn in additional tax revenue from the largest and most complex businesses.”
Apple said in a statement, “We know the important role that tax payments play in society. Apple pays all that we owe according to tax laws and local customs in the countries where we operate.”
“As a multinational business and the largest taxpayer in the world, Apple is regularly audited by tax authorities around the world. HMRC recently concluded a multiyear audit of our UK accounts and the settlement we reached with HMRC is reflected in our recently filed accounts.”
Apple goes on to say that the amount paid “covers corporate income tax for prior years due to the increased activity in our business in the UK.”
Apple’s presence in the UK consists of two main companies—Apple Retail UK Ltd., which is in charge of both brick-and-mortar and online retail sales, and Apple Europe Ltd., which handles support, marketing and back office services.
During the past year, the American tech giant increased its staff in the UK and revealed that it will build a new headquarters in London’s Battersea Power Station to house 1,400 employees.
According to The Telegraph, “in the 18 months to April 2017, Apple Europe reported turnover of £656m with a pre-tax profit of £297m.”
Apple Might Save Big Following Trump’s Tax Reform
Despite this additional charge, Harvard Law Professor Stephen Shay believes companies like Apple might benefit in huge ways from a loophole found in the Trump administration’s recently passed tax reform.
As reported by Reuters, “the loophole involves the tax rates - 15.5 percent [for cash holdings] or 8 percent [for illiquid investments] - that companies must pay on $2.6 trillion in profits they are holding abroad,” a one-time tax break offered to American multinational companies to bring their money onshore.
According to Shay, “by manipulating their foreign cash positions…a U.S. multinational could potentially save money by shifting profits to the lower rate from the higher one,” with Apple alone possibly saving close to $4 billion in taxes.
“This is clearly the result of rushed legislation,” said Shay, who formerly served as a tax official with the Treasury Department.
Eric Solomon, who runs the national tax department for Ernst & Young LLP in the US, believes that “as it stands now, if companies use the strategy to try to reduce their tax bills, it would be up to the IRS to challenge the move — and then see whether its position holds up in court.”