In a press release today (http://europa.eu/rapid/press-release_IP-16-2923_en.htm), the Commission has announced that it has decided that Apple received State aid from Ireland in the form of “undue tax benefits of up to €13 billion”.
According to Ms Vestager, the Commissioner responsible for competition, “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 thrust of the decision (the full text of which will not be made public for a while) appears to be as follows. First, as a matter of background, Apple had set up sales arrangements across the EU which meant that sales were regarded for tax purposes as effected in Ireland. Second, against that background (which does not appear to be questioned, though see below), Ireland agreed, in tax rulings in 1991 and 2007, “artificial” arrangements which allowed profits from those sales to be allocated to a head office “not based in any country”. It is those tax rulings which are attacked as “selective”.
As to recovery, the Commission interestingly notes that, having looked at its decision, other EU Member States may want to open up the conclusion that the sales arrangements entered into by Apple across the EU did result in sales being made (for tax purposes) in Ireland. If they do that, the Commission says, that will impact on the amount that Ireland needs to recover, since it will reduce the volume of Irish sales. Further, in a comment that may reflect adverse US comment on its investigation, the Commission 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.”
Some commentators have suggested that this decision calls Ireland’s generally low corporation tax rate into question. That is simply wrong: the decision is not about Ireland’s generally low rate (which is not subject to control in EU law) but rather about what amounts, in effect, to an alleged waiver by Ireland of its own tax rules by incorrectly accepting Apple’s allocation of profits to its head office based in no country, when that allocation had “no factual or economic justification”.
As usual in these cases, the devil is in the detail: it will be important to look carefully at the actual decision (reported to be 130 pages long) before any confident assessment can be made of its implications.
GEORGE PERETZ QC