What exactly is behind the European Union's gripe with Apple (AAPL) over taxes?
E.U. regulators revealed on Tuesday why they believe the tax deals Ireland granted to Apple constitute illegal state support in their "preliminary view," according to multiple media reports.
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It matters because a final ruling against the tax deals could mean Apple owes back taxes -- up to $200 million based on the figures in Tuesday's letter, according to the Wall Street Journal, while the BBC reports it could amount to "billions of euros" in the end.
Ireland's corporate tax rate is 12.5%, while Apple's effective rate of tax is 2% because of the way it operates through its subsidiaries, says the BBC.
A tax deal would reportedly be deemed illegal if Apple was found to get a "selective" advantage by the Irish government compared to other companies. Among the issues regulators pointed to in a letter to the Irish government published Tuesday, are apparent "reverse engineering" to arrive at certain taxable income without any economic basis and an atypically long tax agreement applied for 15 years without any revising.
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An Apple spokesman has said the company did not receive selective treatment from Irish officials, while Ireland's position has been confidence that the country didn't breach state aid rules with Apple, according to the WSJ.
It's all part of a bigger effort in the E.U., reports the New York Times, in which officials are trying to keep countries within the economic bloc from "competing with one another in using tax treatments as a lure to big business."
In the video above, Yahoo Finance Editor-in-Chief Aaron Task talks about the bigger picture: "Incrementally, it's one other thing that's going to make international trade just a little bit tougher. There's all these things along the edges; trade wars are a long way away." But with the E.U. also threatening Google with anti-trust charges right now and seemingly cracking down on big U.S. multinationals, "if you're a big U.S. multinational you're gonna think, 'how much do we really want to do business in the E.U.'" believes Task.
Here in the U.S., CEO Tim Cook has had to answer to lawmakers over tax avoidance findings laid out in a congressional investigation. But the E.U.'s investigation of Apple could result in the company being materially penalized.
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Apple's not alone. The European Commission reached a similar "preliminary" view that Fiat received state support from Luxembourg in a tax deal, according to multiple media reports, while Starbucks (SBUX) is the target of an E.U. investigation over its operations in the Netherlands.
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