Apple's Cook fires back in open letter on tax bill

Tim Cook shares the words of wisdom Steve Jobs bestowed on his successor. Photo / Getty Images

Apple CEO Tim Cook penned a sharply worded response to the European Commission's ruling that his company would need to repay US$14.5 billion in taxes, again wading in to an exceedingly complex and highly charged political issue with a public and direct open letter to Apple's customers and shareholders.

In the letter, addressed to "the Apple community in Europe," Cook called the commission's action"unprecedented" and says it would have "serious, wide-reaching implications," casting the ruling as a rewriting of prior law that would have its own consequences. "It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been," Cook wrote.

"This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe."

Saying there was an "obvious targeting of Apple," Cook wrote that "the most profound and harmful effect of this ruling will be on investment and job creation in Europe. Using the Commission's theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed."

It is the second time this year Cook has taken a highly complex, controversial issue mired in political trip wires and written directly to customers and shareholders to publicly defend his company's stance. In February, Apple issued a customer letter, signed by Cook, in which he explained the company's decision to oppose an FBI order to unlock a phone belonging to the man behind the San Bernardino, Calif., terrorist attack. "Opposing this order is not something we take lightly," Cook wrote. "We feel we must speak up in the face of what we see as an overreach by the U.S. government."

Click here for NZ Herald's Interactive feature on the global corporate tax debate - How multinationals pay no tax here.

Defending the much lower taxes that Apple has paid overseas is not going to engender the kind of goodwill that an open letter to customers advocating for their privacy did in February. Yet the strategy of writing directly to the public, rather than relying on spokespeople or industry groups to address the topic, could at least help Cook shape the debate. In Tuesday's letter, he acknowledges the intricacy of the subject matter and attempts to outline the basics of international corporate taxes: "Taxes for multinational companies are complex, yet a fundamental principle is recognised 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."

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.

Tim Cook

The European Commission's ruling said that following an investigation launched in 2014, it decided that Ireland granted "undue tax benefits" to Apple, something that is illegal under the European Union's state aid rules.

The European Commissioner in charge of competition policy, Margrethe Vestager, said in a statement that Apple paid an effective corporate tax rate as low as 0.005 percent in 2014. The investigation showed "that the tax rulings issued by Ireland endorsed an artificial internal allocation of profits within Apple Sales International and Apple Operations Europe, which has no factual or economic justification."

In his letter, Cook responded by saying the allegation that Ireland gave Apple its own deal "has no basis in fact or in law" and that the company "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." In doing so, Cook writes, "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."

He also writes that "at its root, the Commission's case is not about how much Apple pays in taxes. It is about which government collects the money."

The letter echoes comments Cook made to The Washington Post in an extended, wide-ranging interview in late July examining his first five years on the job. Asked about the EU ruling, he said "the basic controversy at the root of this is, people really aren't arguing that Apple should pay more taxes. They're arguing about who they should be paid to. And so there's a tug of war going on between the countries of how you allocate profits."

In Tuesday's letter, Cook said Apple, as well as Ireland, would appeal the ruling.