Earlier today we already reported that on December 19, 2016 the Irish Ministry of Finance published an explanation of the main lines of argument in Ireland’s annulment application lodged with the General Court of the European Union on 9 November 2016 (Apple - State Aid) (See our article of earlier today). But just as interesting, or perhaps even more interesting, is that also on December 19, 2016 the European Commission published the non-confidential version of its decision of August 30, 2016 in which it decided that Ireland granted undue tax benefits of up to €13 billion to Apple.

 

In a press release issued by the European Commission on August 30, 2016 the European Commission a.o. stated 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to the "head offices" were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force.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.

 

In its decision of August 30, 2016 the European Commission decided as follows:

 

Article 1

1.   The tax rulings issued by Ireland on 29 January 1991 and 23 May 2007 in favour of Apple Sales International, which enable the latter to determine its tax liability in Ireland on a yearly basis, constitute aid within the meaning of Article 107(1) of the Treaty. That aid was unlawfully put into effect by Ireland in breach of Article 108(3) of the Treaty and is incompatible with the internal market.

2.   The tax rulings issued by Ireland on 29 January 1991 and 23 May 2007 in favour of Apple Operations Europe International, which enable the latter to determine its tax liability in Ireland on a yearly basis, constitute aid within the meaning of Article 107(1) of the Treaty. That aid was unlawfully put into effect by Ireland in breach of Article 108(3) of the Treaty and is incompatible with the internal market.

 

Article 2

1.   Ireland shall recover the aid referred to in Article 1(1) from Apple Sales International.

2.   Ireland shall recover the aid referred to in Article 1(2) from Apple Operations Europe.

3.   The sums to be recovered shall bear interest from the date on which they were put at the disposal of the beneficiaries until their actual recovery.

4.   The interest shall be calculated on a compound basis in accordance with Chapter V of Regulation (EC) No 794/2004.

 

Article 3

1.   Recovery of the aid referred to in Article 1 shall be immediate and effective.

2.   Ireland shall ensure that this Decision is implemented within four months following the date of its notification.

 

Article 4

1.   Within two months following notification of this Decision, Ireland shall submit information to the Commission regarding the method used to calculate the exact amount of aid.

2.   Ireland shall keep the Commission informed of the progress of the national measures taken to implement this Decision until recovery of the aid referred to in Article 1 has been completed. Upon a simple request by the Commission it shall immediately submit information on the measures already taken and those planned to comply with this Decision.

 

Article 5

This Decision is addressed to Ireland.”

 

Click here to be forwarded to the non-confidential version of the European Commission’s decision of August 30, 2016 in the Apple State Aid case as made available on the website of the European Commission on December 19, 2016.

 


 
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