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By | Alexander J Martin 30th August 2016 10:01

EU verdict: Apple received €13bn in illegal tax benefits from Ireland

'State aid' will be recovered, plus interest

Updated The European Commission has ruled that tax arrangements between Ireland and Apple were in breach of the EU's state aid laws, and said the American corporation needs to cough up €13bn in back taxes, plus interest.

Delivering her judgment in Brussels this morning, the EU's competition commissioner, Margrethe Vestager, said:

Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules. 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 European Commission (EC) launched its investigation into the tax arrangements between Apple and Ireland in 2014. Until now, Apple has managed to route almost 90 per cent of its profits outside of the US through its Irish subsidiaries, as they hold the rights to all of the company's intellectual property.

Vestager stressed that the €13bn, which Ireland must arrange to recover, was not a penalty but rather the sum of Apple’s unpaid taxes. The amount could be lessened if Apple’s Irish subsidiaries moved more money to their parent company in the US – where it would become subject to US corporation tax.

Apple's two incorporated companies in Ireland, Apple Sales International and Apple Operations Europe, were found to be fantasy organisations concocted between the Irish taxman and Cupertino which "did not correspond to economic reality: almost all sales profits recorded by the two companies were internally attributed to a 'head office'" which the commission found only existed on paper.

Apple Sales International in particular accounts for almost all of the unpaid taxes that Ireland now needs to recover. It holds the rights to use Apple’s intellectual property to sell and manufacture Apple products across the continent. These arrangements were not what the commission sought to investigate; instead it focused on the minuscule tax that the business had paid over the last decade – noting that in 2014, Apple paid only €50 for every €1,000,000 it earned in profit.

...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. As a result of the allocation method endorsed in the tax rulings, Apple only paid an effective corporate tax rate that declined from one per cent in 2003 to 0.005 per cent in 2014 on the profits of Apple Sales International.

The €13bn that Ireland has been told to reclaim from Apple is the largest ever recovery order issued by the EC, dwarfing the €1.4bn demanded from state-owned Électricité de France (EDF) last year on similar grounds of illegal tax breaks.

The EC opened four cases on tax rulings back in 2014, which covered: Apple in Ireland; Fiat Finance & Trade; Amazon in Luxembourg; and Starbucks in the Netherlands. It sought to establish whether competition in the EU's Single Market was being distorted through selective tax breaks.

Critics have alleged that the Irish government made bespoke arrangements with Apple in 1991 and 2007 which allowed the Cupertino-based business to pay corporation tax at a rate of less than one per cent on EU sales in some years, despite Ireland's standard corporation tax of 12.5 per cent on trading income.

Ireland's Office of the Revenue Commissioners can, by law, issue non-binding advisory opinions on the application of tax law to particularly complicated situations. Its role in these situations is only to interpret and apply the tax law correctly and consistently for all taxpayers.

Citing Section 851A of Ireland's Taxes Consolidation Act 1997, "Confidentiality of taxpayer information", Revenue stated it could not publish the opinions that had been issued to Apple.

Tim Cook, Apple's CEO, has argued that the corporation operates within the same tax structure as all other businesses in Ireland and has denied claims that the company has received any selective support.

The commission disagreed, stating that the selective tax arrangements enabled Apple to avoid taxation on almost all profits generated by Apple's sales in the single market.

The Register is awaiting the Irish taxman's view of the verdict. ®

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