Apple may be on hook for $8 bn in taxes in Europe probe

The European Commission investigation report affecting the company could be out by March

The world's largest company could owe more than $8 billion in back taxes as a result of a European Commission investigation into its tax policies, according to an analysis by Matt Larson of Bloomberg Intelligence. Apple, which has said it will appeal an adverse ruling, is being scrutinised by regulators who have accused the iPhone maker of using subsidiaries in Ireland to avoid paying taxes on revenue generated outside the US.

The probe dates back to 2014 and a decision could come as soon as March.

The European Commission contends that Apple's corporate arrangement in Ireland allows it to calculate profits using more favorable accounting methods. Apple calculates its tax bill using low operating costs, a move that dramatically decreases what the company pays to the Irish government. While Apple generates about 55 per cent of its revenue outside the US, its foreign tax rate is about 1.8 per cent. If the Commission decides to enforce a tougher accounting standard, Apple may owe taxes at a 12.5 per cent rate, on $64.1 billion in profit generated from 2004 to 2012, according to Larson, a litigation analyst for Bloomberg Intelligence.

Apple is perhaps the highest-profile case of US companies facing scrutiny from officials in Europe. Starbucks, Amazon.com and McDonalds also have had its tax policies questioned.

Several senators came to the defense of US companies on Friday. In a letter to US Treasury Secretary Jack Lew, bipartisan members of the Senate Finance Committee asked the administration to make sure that European regulators won't impose retroactive penalties like those that would hit Apple. The senators said the companies may be facing "discriminatory taxation" and that the US government should consider retaliatory measures if European tax authorities follow through with their actions against Apple and others.

"Predictable tax policy fosters a fair and stable environment for business and investment," the senators wrote in a letter to Lew. "Going back in time to penalise taxpayers under a new law, or a new interpretation of an existing law without notice, runs counter to that objective."

In October, Apple listed scrutiny of its taxes as a risk factor to investors. In addition to European regulators, the US Internal Revenue Service has also examined the company's tax returns, Apple said. Were the tax rates to change, Apple's "financial condition, operating results and cash flows could be adversely affected," the company said in its financial statement for fiscal 2015.

Apple Chief Executive Officer Tim Cook has denied that the company uses tricks to avoid paying taxes. In a recent interview on CBS's 60 Minutes, he called the criticism the company has faced from US lawmakers "political crap". He said the tax system is outdated and needs to be updated for a digital economy.

Kristin Huguet, a spokeswoman for Apple, declined to comment. Ricardo Cardoso, a European Commission spokesman, declined to comment.