August 30, 2016 Last Updated 12:20 pm

Apple receives €13 billion tax bill; hackers access Illinois and Arizona voter files

Morning Brief: Apple loses European Commission ruling, with Ireland accused of giving tech giant special tax deal that gave Apple unfair advantage against competitors in Europe

The European Commission has handed Apple a tax bill of more than €13 billion in a long anticipated ruling following a state aid investigation launched in June 2014. The Commission concluded that two tax rulings issued by Ireland to Apple “have substantially and artificially lowered the tax paid by Apple in Ireland since 1991.”

European_Commission.580“Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules,” Commissioner Margrethe Vestager said in a statement. “The Commission’s investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years. In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014.”

The ruling requires Apple to pay unpaid taxes due Ireland for the years 2003 to 2014 of up to €13 billion, plus interest. Both Apple and Ireland said it would appeal the ruling.

“This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation,” Ireland’s Minister for Finance Michael Noonan said.

Apple CEO Tim Cook disputed the claims by the EC and said Apple requested no “special deal” with Ireland.

“The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process,” Cook said in a customer letter. “The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals. We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid.”

“Taxes for multinational companies are complex, yet a fundamental principle is recognized around the world: A company’s profits should be taxed in the country where the value is created. Apple, Ireland and the United States all agree on this principle,” Cook wrote.

The business environment created with such tax deals is one commonly seen in the United States, where states compete with each other to lure businesses, offering special discounts on land or taxes owed. Combined with labor laws that make it hard for workers to form a union, such situations have driven down state tax revenue and lowered wages – a situation great for corporations, but one that has exacerbated income inequality.

“This ruling is a serious attempt at curtailing the power large multinationals have in avoiding their tax liabilities, and sends a warning to countries that facilitate hard-edged corporate tax minimization strategies,” said Louise Gracia, of Warwick Business School.

“It raises some bigger issues beyond the tax practices of Apple, not least the tension created by EU encroachment into the tax practices of individual member states. It also shines a spotlight on the paltry levels of corporate tax that large multinationals are actually paying. Even if we accept the job and wealth creation arguments put forward by multinationals as mitigation against tax liability, this has to be within reason”

How Apple got dinged is explained well by the Financial Times here. But in essence, Apple created two subsidiaries, Apple Sales International and Apple Operations, which recorded all profits on the sale of Apple products in Europe, the Middle East, Africa and India in Ireland. This allowed Apple to avoid paying tax on the profits, something the EC took a dim view of with its ruling today.

Hackers attacked the voter databases of Illinois and Arizona. 200,000 names were accessed from the Illinois database, but officials claimed none were altered or erased.

“We know foreign servers were used, but it’s not conclusive that foreign actors were involved,” Ken Menzel, general counsel for the Illinois State Board of Elections, said.

But others are sure that the source of the attack is Russia, which has been accused of hacking the Democratic National Committee email server.

An Arizona election official said the hack was discovered when the username and password of a county election official was seen being circulated online.

Arizona is holding a primary today where Senator John McCabe is trying to fend off a challenge from a candidate closely aligned with the Donald Trump campaign. Despite this, McCain continues to say he will support Trump in November.

The hacks led the FBI to issue a warning to state officials Monday to boost their security.

App Updates:

AquafadasViewer-featureAquafadas Viewer: The preview app for the digital publishing platform was updated to version 4.6. The update introduces a new spread view to the magazine readers, and fixes bugs.

News Pro: Microsoft’s news app adds Twitter sign-up, and adds video content to the Highlight page.

Apple Store: bug fix update.

The Times of London: The daily edition app for the US received a bug fix update.

The New Yorker Today: the daily news app from the Condé Nast magazine received a bug fix update.

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