AAPL Apple Inc

By Natalia Drozdiak, Viktoria Dendrinou and Sam Schechner 

BRUSSELS -- The European Union's antitrust regulator is poised to rule as soon as Tuesday that Apple Inc.'s tax arrangements with Ireland have breached the bloc's state-aid rules, according to people familiar with the matter.

The EU's decision is likely to aggravate trans-Atlantic tensions over the bloc's investigations into tax deals brokered between U.S. multinational corporations and European countries. Washington has said the probes unfairly target American companies.

In its statement declaring the tax arrangements illegal, the European Commission is expected to cite a figure range which Apple needs to pay back to Ireland and will likely request that Irish authorities to calculate the exact figure.

Analysts have said they expect the commission to require Apple to pay back anywhere between $200 million and as much as $19 billion, depending on the EU's line of argument in its final decision.

The European Commission's antitrust agency opened a formal probe into Apple's tax arrangements more than two years ago, accusing Ireland of striking deals with the U.S. tech company in 1991 and 2007 that amounted to state aid. The EU at the time suggested Ireland had handed Apple the sweetheart deals in exchange for bringing more jobs into the country.

Last week, the U.S. Treasury published a white paper sharply criticizing the EU's tax investigations. In the paper, Washington said it "continues to consider potential responses." U.S. lawmakers have threatened to invoke an obscure section of the tax code that allows retaliatory double taxation.

The case against Apple could become the biggest example yet in the effort European officials have made to claw more taxes from the world's biggest companies. Using structures based in countries including Ireland and Luxembourg, the companies reap billions in revenue but have little left in taxable profit.

The Apple case focuses specifically on what tax should be paid by an Irish-registered company that pays little tax in the country while pulling in billions of dollars in the sale of Apple gadgets to Apple units in countries like Germany that operate on razor-thin margins.

Apple Sales International buys the Apple products like iPhones from contract manufacturers in China and resells them to retail outlets, according to the letter the EU sent to the Irish government. The unit had revenue of over $63.9 billion in fiscal 2012, according to a U.S. senate inquiry in 2013.

Ireland previously has said it was confident its tax arrangements with Apple didn't breach EU rules, and it would defend "all aspects" of the case vigorously, in court if necessary.

An Apple spokeswoman pointed to previous comments by company executives contending that the company received no special treatment and that the billions it brings in via the Irish-registered unit aren't taxed there because that money is subject to taxation in the U.S. if it is repatriated.

Even as the U.S. government has tried to crack down on tax avoidance by its own multinationals, the Apple case is one where the Treasury Department and American corporations have found themselves on the same side.

That is partly because the U.S., unlike most other industrialized nations, imposes a tax upon repatriation of foreign profits. Any tax that Apple pays to Ireland as a result of the EU's ruling could generate foreign tax credits that ultimately would reduce the U.S. tax the Treasury could collect.

This could matter even if Apple never brings its profits home. U.S. lawmakers have been discussing a mandatory one-time tax on U.S. companies' stockpiled foreign profits, and that pool of cash could be reduced if U.S. companies have to pay European nations first.

Apple executives have said they would support reductions to corporate tax rates that would encourage it and other multinational firms to repatriate earnings.

Apple generated $41.73 billion in operating income outside the Americas in the nine months ended June 27, and much of that income likely moved through Ireland.

Last year, when describing $91.5 billion of foreign profits, the company said that "substantially all" of it was generated in Ireland and was subject to a 33% tax on repatriation, suggesting that the company had paid a single-digit tax rate outside the U.S.

As of June, Apple has $215 billion in cash and other liquid investments in its non-U.S. subsidiaries, according to securities filings

--Richard Rubin in Washington, D.C., contributed to this article.

Write to Natalia Drozdiak at natalia.drozdiak@wsj.com, Viktoria Dendrinou at viktoria.dendrinou@wsj.com and Sam Schechner at sam.schechner@wsj.com

(END) Dow Jones Newswires

August 29, 2016 15:52 ET (19:52 GMT)

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