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State set to appeal Apple ruling

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Following a detailed state aid investigation, the European Commission has ruled that the world’s wealthiest multinational corporation, Apple, must pay at least €13 billion (before interest) to Ireland.

Commission findings outline a determination that the Irish Government granted Apple undue tax benefits which it says amount to illegal State aid. Danish Commissioner for Competition Policy Margrethe Vestager states: “Member states cannot give tax benefits to selected companies – this is illegal under EU state aid rules.” The EC investigation, established in June 2014, has determined that tax rulings issued initially in 1991 and latterly in 2007 produced a significant artificial reduction in tax paid to Ireland by Apple.

Vestager adds: “The Commission’s investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years. In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003, down to 0.005 per cent in 2014.”

The 1991 and 2007 tax rulings outlined a means to ascertain the taxable assets from the profits of two Irish subsidiaries of the Apple group, namely Apple Sales International and Apple Operations Europe. However, the vast majority of sales profits registered by these subsidiaries were internally accredited to a respective ‘head office’ leaving a miniscule proportion on which to pay nominal tax. These ‘head offices’, aside from being established in Ireland, have no material presence (no office, address or employees), rather they are managed in the United States. As such, the profits allocated to the ‘head offices’ were not subject to tax in any country (Ireland determines tax liability based on where a company is controlled or manged from as opposed to residency, while the reverse is true in the US). Consequently, on the profits of Apple Sales International, Apple was taxed at a corporate rate of 1 per cent in 2003, declining to 0.005 per cent in 2014.

The existence of such an environment motivated Apple to ensure that its branches across the EU Single Market recorded all sales in Ireland. Almost all profits then flowed through Ireland, facilitating Apple’s tax avoidance on almost all profits generated by product sales across the whole EU. As of January 2015, the ‘double Irish’ arrangement has ceased to exist as a viable tax strategy, however companies which pursue the practice have until 2020 to revise their position.

The Commission deems such conduct as being illegal due to the preferential treatment afforded to Apple ahead of other businesses subject to the same taxation legislation. The European Commission has ordered the recovery of illegal State aid for the 10-year period between 2003 and its first request for information in 2013. The Irish Government must now recover an estimated €13 billion (plus interest) in tax avoided by Apple between the years of 2003 and 2014.

The Commission’s recommendations have been met with vociferous opposition from the Department of Finance which contends: “Ireland’s position remains that the full amount of tax was paid in this case and no state aid was provided. Ireland did not give favourable tax treatment to Apple. Ireland does not do deals with taxpayers.” Expanding upon his Department’s position, Minister Michael Noonan comments: “I disagree profoundly with the Commission’s decision. Our tax system is founded on the strict application of the law, as enacted by the Oireachtas, without exception. The decision leaves me with no choice but to seek Cabinet approval to appeal the decision before the European Courts.”

Defending Apple’s contribution to Europe, Ireland and, more specifically, Cork, Apple CEO Tim Cook maintains: “Over the years, we received guidance from Irish tax authorities on how to comply correctly with Irish tax law – the same kind of guidance available to any company doing business there. In Ireland and in every country where we operate, Apple follows the law and pay all the taxes we owe.” Cook, scathing of the European Commission’s findings, continues: “We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid.”

Likewise, the Government finds itself in an unenviable position whereby it has been pressurised to make a decision which could potentially damage its long-standing loyalty to the European project rather than provoking an exodus of multinationals from the State.

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