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FILE - In this Friday, May 13, 2016, file photo, a man uses his mobile phone near an Apple store in Beijing. Apple reports financial results Tuesday, July 26, 2016. (AP Photo/Ng Han Guan, File)

Apple and Ireland formally challenged an EU ruling over the tech giant's $14B tax bill

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Apple is a convenient target because it generates lots of headlines.
Apple, in a statement

Back in August, the European Union ruled that Apple owed $14.5 billion in back taxes after a two-year investigation found Ireland had given the tech giant illegal state aid.

On Monday, Apple and Ireland teamed up to formally to challenge the ruling. Ireland said the European Commission exceeded its boundaries, while Apple said it was targeted.

The Irish response

Ireland insists the policy that makes it extremely cheap for Apple to operate and sell its devices in Ireland and the rest of the EU is legal.

The country offers some of the lowest tax rates in the EU. Its economy is booming, and Apple is one of its biggest private employers. Its location in Cork, Ireland brings a reported $17 billion into the Irish economy.

The Irish government may fear the ruling could scare away other investors, which could cost thousands of jobs.

The EU rationale

But the EU argues Apple used shell companies incorporated in Ireland to dodge taxes. It claims Apple paid just 0.005 percent on its international profits in 2014.

Apple CEO Tim Cook called the ruling "obvious targeting." Apple's lawyers claim the EU ignored expert advice in attempts to maximize how much Apple owed.

The U.S. government also condemned the ruling, saying it threatened European investment.

apple ireland.png

For context, Europe has the lowest average corporate tax rate in the world by region. It's still 18.6 percent, according to Tax Foundation.

Why did Ireland try this?

Ireland struck the deal in 1991 and has since become a tech hub. Letting Apple flaunt its tax rules was a "sweetheart deal" intended to create jobs, Bloomberg reports.

There were two Apple companies based in Ireland: Apple Sales International and Apple Operations Europe. ASI made yearly payments to Apple to fund research. Those payments weren't taxable, so the EU missed out on billions in tax dollars every year. Most AOE profits were allocated to a "head office" that didn't employ anyone.

Should Apple have to pay up for the $14 billion in back taxes?

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