EU Orders Apple to Pay $14.6 Billion in Back Taxes; Farage: I'm Worried About Brexit Backsliding; U.S. Treasury Calls Apple Ruling

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Worried About Brexit Backsliding; U.S. Treasury Calls Apple Ruling

"Unfair"; U.S. Markets Fall on Hawkish Fed Tone; Cork Mayor: Apple Supports

7,500 Jobs in Cork; Diddy Unveils New Ciroc Vodka Campaign; ISIS Claims Top

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allegedly helped Apple make its tax bill considerably thinner and lighter.

Vestager, says it's a question of corporate ethics. You have a very, very

good business environment in Europe and in Ireland, but if you come here to

avoid paying taxes, you've come here for the wrong reasons. Nigel Farage

believes that the European Commission has overreached itself in making this

ruling against Apple. The European Competition Commission says the

agreement between Apple and Ireland was made in 1991 that allowed Apple to

get a better tax deal than other companies. If true, it would be illegal,

which is what the commission says, illegal state aid. The United States

Treasury says the partnership between America and the European Union is now

in jeopardy. Only last week the Treasury warned there would be

consequences if Europe bit off too much of Apple. The mayor of Cork says

the lion's share of the money collected should go to his city. Des Cahill

claims it's only right, since Cork bore the brunt during Ireland's

recession and EU bailout. The New York Stock Exchange saw Diageo ringing

the closing bell. It had the most famous branding executive out there,

Sean "Diddy" Combs launching a new campaign for Ciroc vodka. An

unprecedented announcement. ISIS says one of its top spokesman has been

killed in Syria. The British people have voted to leave the European

Union. But the Brexit vote has made the picture in the U.K. far more

complicated. Germany and France both say TTIP is in trouble and TPP is

already on the ropes with Clinton and Trump both saying they don't like it.

Spain's tourism numbers have increase more than 10 percent so far this

year. France is on the other side of the equation with a decrease in 7

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[16:00:00] RICHARD QUEST, CNN ANCHOR: Sean "Diddy" Combs ringing the closing bell on Wall Street. The Dow is off 54 points. No, no, not yet, sir. Not yet. We're hoping to talk to him on the program in the course of this hour. They booed when it looks like he'll be doing something. I think that was a rather wimpy gavel from Sean "Diddy". Yes, but you will be talking to him later, there's a good cheer. You can see how the day is going to go. It's Tuesday. It's August the 30th.

Tonight the taxman cometh for Apple. Brussels demands $14 billion in back taxes.

And in the United States are furious, accusations of EU overreach. I'll talk to UKIP's Nigel Farage on this subject.

And as you saw at the exchange, raise a glass to Sean "Diddy" Combs. We'll be back on the floor with the hip-hop legend as he talks about vodka.

I'm Richard Quest. I'm exhausted before we started. But I still mean business.

Good evening. The European commission has accused Ireland of giving Apple billions of dollars in illegal state aid. It's a groundbreaking decision that has rocked the business world. So today, of course, we're calling it the I-tax. It could cost up to $14.6 billion. That's how much Apple would have to repay Ireland.

It's the EU's largest ruling for a single company on tax. Ireland allegedly helped Apple make its tax bill considerably thinner and lighter. The numbers were staggering, as revealed from the commission. One percent or less of profits were paid in tax. The scheme was years in development, two decades in execution. Of course that's not all. There is more as well. Apple and Ireland have pledged to appeal. Tim Cook says the decision has no basis in fact or law. So an Apple, the decision that's quite monumental. For more, Samuel Burke is with us in London. How did they do it?

SAMUEL BURKE, CNNMONEY BUSINESS AND TECH CORRESPONDENT: Richard, this dates back to the '90s. Plain and simple, Ireland became the really international headquarters for Apple, for their sales in Europe, Middle East, Africa, even India. Why Ireland? Because the corporate tax was low there. But the signature corporate tax in Ireland for businesses is 12.5 percent.

And just take a look at these numbers, Richard, it's so much lower, what Apple has been paying over the years. You go to 2003 and you see they were paying just 1 percent. In 2011, down to 0.05 percent. By 2014, 0.005 percent. Now, the EU isn't giving them a penalty. They're saying these are back taxes that you owe, plus the interest. So actually we could be talking about well over $14.6 billion when it's all said and done, Richard, if it's all said and done.

QUEST: And of course the EU, even though this probably started in the early '90s, the EU is only allowed to go back ten years from the date they started looking into this, isn't it, Samuel, which was 2013. That takes them back to 2003.

BURKE: And what's so fascinating about all this to me, is you're talking about huge amounts of money. You would think these governments would want it. But of course Ireland doesn't want it. They're saying please, don't pay us. If you just take a look at this list of who has what to lose in this whole thing, it seems like everybody has so much to lose. You have Apple who could lose way more than $14 billion, I don't think you or I or anybody feels too bad for them, that's just about 5 percent of the cash reserves they have on hand.

You have Ireland though. They're very afraid. They could lose companies like Apple and of course the thousands of people that Apple does employ, actually human beings with jobs. You have other EU countries like Netherlands and Luxembourg, which must be very frightened tonight as they watch QUEST MEANS BUSINESS because they could lose the companies they have there. And of course oddly enough the U.S. federal budget could take a big dent. Because any time an American corporation pays tax to a foreign government, they get a credit. And the United States never expected the back taxes to be this high. All of a sudden they could have a very significant debt in the federal budget.

[16:05:00] QUEST: Samuel Burke in London with the big picture for us tonight. So what did Apple do? The European commission is accusing the company of setting up a tax structure that in their words has no basis in economic reality. So we are going to allow you to follow the money.

You have to understand, the beginning of all of this is over here in the Apple stores, across the European Union. It doesn't matter where you bought your Apple product. The way the contract was constructed, it wasn't with the store in that country. Oh, no. Instead, you were actually contracting with Apple sales international. This Irish company recorded profits of $22 billion from across the European Union. But very little of it was actually taxed in Ireland, because the tax rate had been manipulated.

How did they do that? Simple. They created a fictitious head office. This head office seemingly had no tax domicile. The EU says it only existed on paper. And what the Irish agreed, the Irish basically agreed to allow Apple to apportion the revenues between Ireland, small bit, and the head office, big bit. And since there was no tax payable here, that's how billions and billions of euros went without being taxed.

Then there is of course over here the $2 billion a year that Apple paid for research and development to the parent company in the United States. You're seeing a picture of how they did this. Whether it was the internal transfer for R&D to the U.S., or the use of it fictitious head office, or the Irish subsidiary, or the sales in the Apple store, you put it all together, and you have a construct with acquiescence by the Irish. Now the commissioner told CNN this is not about the EU being tone deaf to the realities of the business world. This is way more serious.

(BEGIN VIDEOTAPE)

MARGRETHE VESTAGER, EUROPEAN COMPETITION COMMISSIONER: I think it's a question of corporate ethics. You have a very, very good business environment in Europe and in Ireland. If you only want to come here, if you can be allowed to pay 0.05 or 0.005 percent in taxation, I think you come here for the wrong reasons. Because this is a beautiful place to do business. You can have a very good business here. And this is a question about profits made in Europe. Profits made in sales in Europe, in Africa, in the Middle East, in India, all recorded in Ireland.

This is a question about profits being made here. And therefore, of course, it's a question also for EU legislation. And I think that is the core of things. And I think it is very important to remember all of the businesses, hundreds and thousands of businesses who pay their taxes, because they do, because they can't help it, because they can have no tax ruling to allow them not to pay their taxes. That is the question that ought to be discussed. And that is the question which also ought to be discussed in boardrooms, in corporate business.

(END VIDEOTAPE)

QUEST: That's the commissioner. Joining me now from Brussels is Nigel Farage, the former leader of the U.K. Independence Party, good to see you, Nigel, as always. Thanks for joining us. We have been talking about the business side of it. But you have a view, and I've been looking at your tweets today, that the commission has overreached itself in making this ruling. But I ask you, sir, surely the commission does have a responsibility to ensure a level playing field in the single market.

NIGEL FARAGE, FORMER LEADER, UK INDEPENDENCE PARTY: Well, you know, if you believe in level playing fields, that's fine. Actually what we have within the tax structures of the European Union is competition. And I say that because the European commission does not have any authority, any jurisdiction over corporation tax rates at all. It has some over VAT, but none, none, directly over corporation tax rates.

So what they've done is not having the authority to deal with this, they've gone through the competition rules and said that it's basically unfair and that it equates to state aid. I completely understand that most people watching this program will say, well how could it be that these giant corporations, you know, choose their domiciles, often switch them, and avoid paying tax?

[16:10:05] But the real point here is that a sovereign Irish government, at least they thought they were sovereign, did a deal with a company. What the Irish did is they chose jobs, OK, over tax. You said earlier that it was a fictitious head office. Hang on. There are 5,000 people working for Apple in Ireland.

QUEST: Right, there are 5000 people working for the Irish company. But in which case, Nigel, the revenues should have been booked to the Irish company and tax paid on all the revenues, not with an agreement, as the commission says, to hide it off to this company that pays no tax whatsoever.

FARAGE: Well, I think to be honest with you, we've seen similar deals done in Luxembourg and other countries like that. Look, I'm not sitting here and defending multinationals not paying their taxes, far, far from it. But what I am saying is the European Commission has reached way beyond, what I think it's legal authority to be. And I suspect there will be a court case here that will go on for many, many years.

But the real kicker is this, that this is all retrospective. And that sends a message to business that if you invest with the European Union, if you're tax domiciled with the European Union, the fact that you've shaken hands with a government actually means nothing.

QUEST: Strong point there. But I want to turn to a couple of other points, because were lucky to have you this evening and I'm grateful that we've got you this evening. First of all, I'm hearing reports out of the U.K. that there could be talk of some sort of Brexit lite. I'm sure you're hearing similar reports that Theresa May had a cabinet meeting at Chequers. Are you worried there could be back sliding?

FARAGE: Yes, I am. We heard Sargaso Donnell, who was the biggest civil servant in Downing Street for years, saying at the weekend, oh, we don't really need to leave. And there are various ministers lining up saying, well, we want to be part of a single market. Let's be clear, in what was the greatest democratic exercise in the history of our nation, 17.4 million people voted to get back political control. To leave the customs union that is the single market. And to take back control of our fishing waters.

And anything less than that, I promise you, will lead to political anger the likes of which we've never seen in this country. So I would say to Prime Minister May, who is 50 days into her premiership and who started off saying some good, strong, positive things about Brexit being Brexit, I would say to her that if she does not hold faith with the majority that voted for Brexit, then this issue will destroy her career as it did David Cameron's.

QUEST: And you, sir, have been extremely busy on this side of the Atlantic. You were at the convention and recently, don't be so modest, because we're going to show a clip of you addressing a Donald Trump rally recently, in Mississippi, I think it was. Let's enjoy what you said at that rally for a second.

(BEGIN VIDEO CLIP)

FARAGE: If I was an American citizen, I wouldn't vote for Hillary Clinton if you paid me.

(END VIDEO CLIP)

QUEST: Now, you've made it clear you won't endorse a candidate because that's what Barack Obama did when he -- on the referendum.

FARAGE: Yes.

QUEST: But let me ask you. I read your blog and you say you're finding favor in Donald Trump, the man and the policies.

FARAGE: Well, I mean, look. The point is this. Hillary Clinton is part of that same political established across the western world who over the last couple of decades have led us into an endless series of civil wars. Who have worked hand in glove with big banks and big businesses. Have seen living standards decline for ordinary workers. And frankly, what Hillary represents is no change. If you vote for her, you get no change.

Now, the reason I was in the states is the big message of Brexit is simply this. The 2.5 million people who don't normally vote or who had never voted in their lives who felt motivated to go out to vote. And I think, I think, there's a similar audience in America who feel Washington is a long way away from them and want to shake things up.

QUEST: But you say in your article, "I was astonished that everybody I met wanted to talk about Brexit. Not just the delegates at the convention, but ordinary people." So do you think that this Brexit-eering in the U.K. fuels an element of Trump-ism in the U.S.?

[16:15:00] FARAGE: I think what it fuels is an element of perhaps change, real change, radical change across the western world. Brexit is the first fight back. You know, against the kind of global corporatism that gives ordinary people a bad deal. And I think that if the Republican campaign can go and focus on those nonvoters. Go and focus on those people who feel politics is hopeless because nothing ever changes. If they do that, then I think the pollsters could be wrong in America as they were about Brexit.

QUEST: And you're sure you don't want to endorse a candidate on our program tonight, Nigel?

QUEST: No, I'm not going to do that, very kind of you to ask me, but I've made my position about Hillary pretty clear. And she of course has reciprocated in kind.

QUEST: I think we can simply say there's not a huge amount of love lost in either direction. Good to see you, sir. Thank you for joining us from Brussels tonight.

FARAGE: Thank you.

QUEST: Nigel Farage. Now, Nigel was talking there about the Irish and shaking hands with the Irish government and the retrospective nature of this. The Irish are up in arms, foaming at the mouth at what they see as an extraterritorial move by the EU in a sovereign area of tax policy. We'll talk about that after the break.

(COMMERCIAL BREAK)

QUEST: Designed by Apple in California and taxed by Ireland in Cork. Or not taxed at all. Now Ireland's government insists the company has done nothing wrong. Apple is headquartered in Cupertino, California. And in fact that's inscribed on every one of company's products. This is what the campus looks like. This is Cupertino. It's a rather nice place in Silicon Valley. But we must travel about 8,000 kilometers from Cupertino across the Atlantic Ocean, well we're going to go north over the pole, and we go into Cork in Southwestern Ireland, to an industrial estate at this office.

But the Competition Commission says the agreement was made in 1991 that allowed Apple to get a better tax deal than other companies. If true, it would be illegal, which is what the commission says, illegal state aid. The commission says it's not questioning Ireland's tax system in general, just this particular deal. But Owen Murphy is the Irish minister of state. He joined me earlier from Dublin. He said his country did not cut a sweetheart deal and that the commission has overreached.

(BEGIN VIDEOTAPE)

EOGHAN MURPHY, IRISH MINISTER FOR FINANCIAL SERVICES: We didn't give any state aid to Apple or any other company in Ireland. We're unable to do special deals with individual companies. We have a very consistent, transparent, and legally binding tax rate in this country. And the revenue commissioners responsible for collecting taxes in Ireland do not have the possibility of arranging special deals with any company or acting within the law or outside the law to arrange special deals.

[16:20:04] And of course he is wrong. We believe it's being inconsistent in its findings and is overreaching outside its authority.

QUEST: How do you then justify the tax ruling that allowed Apple to apportion the profits, the majority of the profits, to a headquarters company that was based nowhere and paid no tax?

MURPHY: Ireland isn't responsible for Apple's international taxes. It's not possible to be mistake this for tax purposes in this country. We work with the OEDC best practices guidelines in that regard. Was happening in this instance is the commission is trying to make Ireland or Apple operating in Ireland and the Irish Revenue Commissioners responsible for collecting taxes on activity that didn't happen in this country. We don't believe that is our responsibility. We believe in working with the OECD guidelines to make sure we are working to best international practices. We've collected all of the tax that Apple was due to pay in this country. I think the commission has made a mistake in this regard and been inconsistent in its ruling which we find, quite frankly, to be bizarre.

QUEST: The two tax rulings, the one in 1991 and the one in 2007 that allowed Apple to book its profits to this head office which the commission says has no economic or financial justification, you say that's nothing to do with the Irish.

MURPHY: No, what I'm saying is the two corporate entities that operated in this country and the very real activities that we have happening here from Apple, over 5,000 people working and producing, those activities are taxed appropriately. And the advisory opinions that were given by revenue commissioners in relation to the activities of Apple in that regard.

Our tax system is based on a self-assessment model and in certain circumstances you can go to the revenue commissioners and ask for an advisory opinion. Again, it's only an advisory opinion. But that was given in those two instances. And what we are saying to the commission who are saying that we are responsible for collecting taxes from Apple for activity that didn't happen here over a ten-year period. We're not responsible. This issue is not for us. We're going to fight to protect our international reputation. We did not do anything illegal.

(END VIDEOTAPE)

QUEST: Now, they're all at it in one way or another, some would arguably say. In Luxembourg, investigations are still under way against Amazon and McDonald's regarding concerns over tax rulings. Also in Luxembourg it's been determined that Fiat was granted selective tax advantages. The same goes for Starbucks in the Netherlands. AB InBev is one of the companies that may have breached the rules in Belgium.

Because all these countries are desperate to get the companies and therefore are prepared to stretch, perhaps to the point of breaking, the interpretation of what is a legitimate tax agreement. The United States Treasury says the partnership between America and the European Union is now in jeopardy. Only last week the Treasury warned there would be consequences if Europe bit off too much of Apple. And today, the treasury said the commission's actions could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the U.S. and the EU. Paul la Monica is with me. Paul, but surely the treasury doesn't want to have tax avoidance schemes. So what are they getting at in this situation?

PAUL R. LA MONICA, CNNMONEY CORRESPONDENT They clearly don't want to have tax avoidance schemes. That is one reason why the Treasury has cracked down on a lot of these, quote unquote, inversions where companies have to pay less to the U.S. than when they go abroad. I think the issue now is that if the EU were able to get significantly more money from Apple because of the taxes that they think are being avoided in Ireland, that is money that the U.S. IRS would not be able to get from Apple and many other large U.S. multinationals if there all of a sudden pain these giant tax bills.

QUEST: If the tax, if the tax was legitimately paid in the EU in the first place, whether it be to individual countries or to Ireland, the U.S. wouldn't get it anyway, it would always get a tax credit against the European tax burden.

LA MONICA: Right: But it's an obviously a much higher amount right now. We're talking about significantly lower levels of taxes that are being paid abroad. If all of a sudden the EU is able to get some sort of agreement or settlement with Apple where we're talking about billions or tens of billions of dollars, that's much more than the very small amount in taxes that Apple pays to Ireland, which still allows the U.S. treasury to tax Apple at a much higher rate and get more money.

[16:25:00] QUEST: Except the U.S. never gets its hands on the money, because Apple, along with most other multinationals, keeps billions offshore, overseas.

LA MONICA: The amount of money that Apple has overseas is staggering.

QUEST: Explain why they don't bring it back to the U.S.

LA MONICA: Apple doesn't bring it back to the U.S. for precisely the reasons of taxes. They don't want to have to pay the larger percentage tax rate they would on that cash if it were on the balance sheet in the U.S. This is why Apple has a lion's share of its $235 billion in cash sitting in banks in Europe.

QUEST: How serious is it, and the argument that says whatever the legitimate position of the commission, they shouldn't ask for the tax back from Apple because it's retrospective. Apple was performing under what it understood the law to be and it had a handshake from a government about that.

LA MONICA: That I think is going to be the key sticking point here, Richard. It's not as if the Irish government was strong armed into accepting lower tax revenue. They willingly set up this situation with Apple because it meant thousands of jobs for cities like Cork and other struggling cities in Ireland. And that is obviously a tradeoff they were willing to accept. Of course you can only tax your own people when they're making more money and they have jobs, their tax rates go up as well.

QUEST: Paul, good to see you, sir, thank you very much indeed. This question of what Apple has done is the subject of our newsletter tonight. And I asked the question in the newsletter, obviously Apple is liable, at one level is guilty, however you want to use it, and at the other level, the Irish government acquiesced it. But my question is, should Apple pay the bill? They relied on the Irish. They did whatever they did to do in the way they did it. And now is it fair that Apple gets the bill? CNNmoney.com/quest. It's the newsletter. We'll have your thoughts on that.

European markets closed mostly higher on Tuesday. With Europe boosting exporters. Investors preparing for a possibility of a rate hike in September. Three were up, one was down. And the U.S. markets, they were lower, straight out of the gate, they went down and never looked back. It's interesting, it's the rate hike in the opposite direction. Or the hawks are coming back in.

A few moments ago you saw Diageo ringing the closing bell. Well, actually you saw its most famous branding executive doing the ringing on a very firm gavel. Sean "Diddy" Combs has formed a new company Ciroc vodka and young entrepreneurs. And he will be with us after the bell. Break. Bell-break. You know what I mean.

(COMMERCIAL BREAK)

[16:30:00] QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. The mayor of Cork in Ireland tells me why his city deserves the big slice of the Apple tax pie. That's more wishful thinking than reality. But he'll be justifying his position in just a moment or two.

France's tourism minister tells us why he's honored to welcome tourists.

Before that, this is CNN, and on this network the news always comes first.

The official ISIS news agency has announced the death of its spokesman. Abu Mohammad al-Adnani was the public face of the terror group. The statement says he was killed in the Syrian city of Aleppo. It's unprecedented for ISIS to make such an announcement.

Europe's Competition Commissioner has denied any political motivations behind the rulings on Apple's tax affairs in Ireland. The EU is demanding Apple pays back more than $14 billion in back taxes. Margrethe Vestager told CNN companies like Apple should expect to pay their fair share.

(BEGIN VIDEO CLIP)

VESTAGER: You have a very, very good business environment in Europe and in Ireland. And if you only want to come here if you can be allowed to pay 0.05 or 0.005 percent in taxation, well, I think you come here for the wrong reasons.

(END VIDEO CLIP)

QUEST: Nigel Farage, a member of the European parliament and a well-known Eurosceptic, speaking to me on QUEST MEANS BUSINESS. He said the European commission has reached far beyond its legal authority.

(BEGIN VIDEO CLIP)

FARAGE: I suspect there will be a court case here that will go on for many, many years. But the real kicker is this, that this is all retrospective. And that sends a message to business that if you invest within the European Union, if you're tax domiciled within the European Union, the fact that you've shaken hands with a government actually means nothing.

(END VIDEO CLIP)

QUEST: Now, more on the unprecedented announcement. ISIS says one of its top spokesman has been killed in Syria. Nick Paton Walsh will be joining us from Gaziantep to talk about this in just a moment. While we wait to hear from Nick, who is obviously having some connection difficulties for the moment.

The Irish government, we'll talk more about the Apple decision. The Irish government finds itself in an unusual predicament tonight. It may be the only government in history trying to stop someone from paying a tax bill. And a tax bill of $14 billion. The European commission ordered Ireland to recover the whopping sum from Apple. Tim Cook has said, "The most profound and harmful effect of this ruling will be on investment and job creation in Europe."

The mayor of Cork says the lion's share of the money collected should go to his city. Des Cahill claims it's only right, since Cork bore the brunt during Ireland's recession and EU bailout. The mayor Des Cahill joins me now. Lord Mayor, good to see you, sir. I admire your inventive suggestion, and indeed your optimistic, sir, that you should get the lion's share of the $14 billion. But you're not really expecting to get it, are you?

DES CAHILL, LORD MAYOR OF CORK CITY: No, Richard, I suppose it's fair to say that I believe the appeals will be successful. The relationship between Cork and Apple and Apple and Cork is a very strong one. I think that -- I'm confident both the government and Apple in their state and stay will be correct that the commission has gone beyond its remit. But my point really was that if there is an outcome, a cash outcome, and part of that money should be used for direct investment for capital projects within our city that are needed.

QUEST: On this point, because obviously, unless you're a tax expert, and I'm certainly not, but on this point, sir, don't you find it slightly galling though that Apple didn't pay more tax, having set up the structure for everything to be run through Ireland. Because if they had paid more tax, there would be more money for your local government needs,

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