On August 30, 2016 the European Commission issued a press release announcing that it has concluded that Ireland granted undue tax benefits of up to €13 billion to Apple. According to the EU this is illegal under EU state aid rules, because it allowed Apple to pay substantially less tax than other businesses. Ireland must now recover the illegal aid.
In the press release the European Commission states that following an in-depth state aid investigation it launched in June 2014, the Commission has concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991. According to the European Commission the rulings endorsed a way to establish the taxable profits for two Irish incorporated companies of the Apple group (Apple Sales International and Apple Operations Europe), which did not correspond to economic reality: almost all sales profits recorded by the two companies were internally attributed to a "head office". The Commission's assessment showed that these "head offices" existed only on paper and could not have generated such profits. The European Commission furthermore statest hat these profits allocated to the "head offices" were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force. According to the Commission as a result of the allocation method endorsed in the tax rulings, Apple only paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014 on the profits of Apple Sales International.
According to the European Commission this selective tax treatment of Apple in Ireland is illegal under EU state aid rules, because it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules. The Commission can order recovery of illegal state aid for a ten-year period preceding the Commission's first request for information in 2013. In the press release it is also announced that Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest.
In its press release the European Commission adds that in fact, the tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market. According to the European Commission this is due to Apple's decision to record all sales in Ireland rather than in the countries where the products were sold. The European Commission states that this structure is however outside the remit of EU state aid control. The European Commission also states that if other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland.
In its press release the European Commission also states that the amount of unpaid taxes to be recovered by the Irish authorities would also be reduced if the US authorities were to require Apple to pay larger amounts of money to their US parent company for this period to finance research and development efforts. These are conducted by Apple in the US on behalf of Apple Sales International and Apple Operations Europe, for which the two companies already make annual payments.
Click here to be forwarded to the press release as issued by the European Commission on August 30, 2016.
Click here to be forwarded to a statement issued by Ms Vestager on the European Commission’s decision that Ireland's tax benefits for Apple were illegal.
Ireland’s reaction to the European Commission’s decision
In reaction to the decision of the European Commission the Irish Department of Finance issued a press release titled: “Minister Noonan disagrees profoundly with Commission on Apple”.
In this press release the Irish Minister a.o. states that following discussion with the Taoiseach he will now seek Cabinet approval to appeal the European Commission’s decision to the European Courts. According to the Irish Ministry of Finance, Ireland has a period of two months and 10 days to bring an appeal. In the press release the Ministry states that the Irish Government will now study the decision of the European Commission in consultation with its legal advisors to prepare the grounds for an appeal.
An interesting paragraph in the press release as issued by the Irish Ministry of Finance is the paragraph ‘Recovery and escrow’, which reads as follows:
“The Commission has stated that:
The amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the profits recorded by Apple Sales International and Apple Operations Europe for this period.
The amount of unpaid taxes to be recovered by the Irish authorities would also be reduced if the US authorities were to require Apple to pay larger amounts of money to their US parent company for this period to finance research and development efforts.
This illustrates the contradiction at the heart of the European Commission’s decision. While requiring Ireland to recover the tax sums, the Commission is also acknowledging that the sums may in fact be taxable in other jurisdictions.
The European Commission is also incorrect to state that profits allocated to the Apple companies’ head offices were not subject to tax in any country under a specific provision of the Irish tax law. This refers to a mismatch between different countries’ tax rules, which by definition cannot be the responsibility of Ireland alone.
Notwithstanding the right of appeal, Ireland is legally obliged to recover the alleged state aid from Apple in the interim. Given that this money may ultimately have to be returned to the company in the event of a successful appeal, the money can be held in escrow until the case has concluded.”
In the press release as issued by the Irish Department of the Finance also the following was stated in the paragraph ‘European Commission’:
“Ireland acknowledges and accepts that the European Commission has a legitimate role, under the Treaties, in enforcing competition rules. It is not appropriate that EU State aid competition rules are being used in this new and unprecedented way in the area of taxation, which is a Member State competence and a fundamental matter of sovereignty.
Ireland has very real concerns about the way in which the European Commission is undermining the international consensus, impeding reform and creating uncertainty for business and investment in Europe.
Ireland is not alone in this view. The US Treasury has raised very important concerns in its recent White Paper on the European Commission’s State aid investigations. The US Treasury has stated that: “The Commission’s new approach is inconsistent with international norms and undermines the International tax system”.”
Click here to be forwarded the press release as issued by the Irish Department of Finance in reaction to the European Commission decision that Ireland allegedly granted illegal tax benefits to Apple.
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