US warns Europe over plan to demand millions in unpaid taxes from Apple

US Treasury says investigations into alleged taxation avoidance by US companies including Amazon and Starbucks could create unfortunate precedent

The US has cautioned the European commission that it will consider retaliating if Brussels goes ahead with plans to demand billions of dollars in unpaid taxes from Apple and other US multinational companies.

The Obama administration warned the EU on Wednesday that its investigations into alleged tax avoidance by US firms, including Apple, Amazon and Starbucks, could create an unfortunate international tax policy precedent.

In a white paper commissioned by US Treasury secretary Jack Lew, the US warned that Brussels was overstepping its powers and becoming a supranational taxation authority.

The US warned that if Brussels pushes ahead with threatened plans to demand as much as $19 bn( 14.4 bn) from Apple for alleged unpaid taxes as a result of so-called sweetheart deals with Ireland the US Treasury will consider potential responses.

The EU has been investigating whether Apples tax are dealing here with Ireland, which allowed the company to pay very little tax on income earned throughout Europe, amounted to nation assist. The committee is expected next month to rule on the case, the biggest single corporate taxation avoidance investigation.

Investment bank JP Morgan has warned that if the commission necessitates Apple to retroactively paying off Irish corporate tax rates of 12. 5% on the pre-tax earnings it collected via Ireland it could expense the company as much as $19 bn.

A US Senate investigation in 2013 found that Apple paid little or no tax on profits of at the least $74 bn over four years by exploiting gaps in the Irish and American tax code. The investigation find no evidence of illegal activity and both Apple and Ireland deny any wrongdoing.

Tim Cook, Apples chief executive, has called the investigations political crap. There is no truth behind it, he told. Apple pays every tax dollar we owe.

In its final warning to the EU before the expected ruling, the US Treasury accused Brussels of a shift in approach[ that] appears to expand the role of the Commission beyond enforcement of competition and State aid law … into that of a supranational taxation authority that reviews member state transfer price determinations.

The US Treasury Department continues to consider potential reactions should the Commission continue its present course, the white paper cautioned in the USs strongest speech to date. A strongly preferred and mutually beneficial outcome would be a return to the system and practise of international taxation cooperation that have all along fostered cross-border investment between the United States and EU member states.

The threat that the US may retaliate against the EU goes soon after Lew flew to Brussels for talks with the EUs competition commissioner Margrethe Vestager on transatlantic cooperation.

Margrethe Vestager (@ vestager) July 13, 2016

Very good meeting with Secretary of the Treasury Jack Lew on the European economy and transatlantic cooperation. XiQBa6STAg

Vestager has already demanded 20 m-3 0m inback taxes from Starbucks and Fiat Chrysler after ruling the firms struck illegal tax deals with the Netherlands and Luxembourg. The commission is also seeking a similar investigation against Amazon.

Lew has accused the commission of targeting US companies disproportionately. The committee denied this on Wednesday, saying its investigation applies to all companies operating in Europe there is no bias against US companies.

The EU is forecast that corporate tax avoidance expenses member states 50 m-7 0bn a year in lost taxes.

The US Treasury warned that American taxpayers could end up footing the bill if the commission plan ahead and demands back taxes from Apple and other US companies as the firms may be able to offset the EU-demand taxes against US tax pays. It described this potential outcome as deeply troubling, as it would effectively constitute a transfer of revenue to the EU from the US government and its taxpayers.

The white paper said the commissions demand for retroactive taxation payments defines an undesirable precedent that could lead to other tax authorities, particularly those in developing countries that look to the EU as a model, to seek large and punitive retroactive recoveries from both US and EU companies.

Cook has said Apple will obviously appeal the commission on human rights ruling if the company doesnt get a fair hearing.

Its important for everyone to understand that the allegation made in the EU is that Ireland gave us a special bargain. Ireland denies that. The structure we have was applicable to everybody it wasnt something that was done unique to Apple. It was their law, Cook told the Washington Post earlier this month.

And the basic disagreement at the root of this is, people really arent arguing that Apple should pay more taxes. Theyre arguing about who they should be paid to. And so theres a tug of war going on between the countries of how you allocate profits.

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