UK and International Tax news
Apple State Aid Case Update
Saturday 31st December 2016
The EC has recently issued its final decision on its state aid investigations into the two transfer pricing rulings granted by Ireland to the Apple Group.
This follows the EC’s press release of 30 August 2016 in which it held that the selective tax treatment of Apple in Ireland was illegal under EU state aid rules because it gave Apple a significant advantage over other businesses that are subject to the same national taxation rules. The publication of the full decision was deferred in order to allow and confidentiality issues to be addressed.
In June 2014, the EC opened its investigations into whether EU state aid rules had been broken by tax authorities in Ireland. The full report confirms that Ireland gave illegal tax benefits to Apple worth up to €13bn.
The EC examined rulings issued by the Irish tax authorities on the calculation of the taxable profit allocated to the Irish branches of Apple Sales International and of Apple Operations Europe and confirmed its preliminary view that tax rulings in 1990 and 2007 constituted state aid according to Article 107(1) TFEU and had doubts about the compatibility of such aid with the internal market.
It requested Ireland to submit its comments and provide further information in order to assess the aid given. It has also reconfirmed that any unlawful aid may be recovered from the recipient under Article 14 of Council Regulation EC No 659/1999.
In the 30 August 2016 press release, the EC concluded that two tax rulings issued by Ireland to Apple had substantially and artificially lowered the tax paid by Apple in Ireland since 1991. The rulings endorsed a way to establish the taxable profits for two Irish incorporated companies of the Apple group (ASI and AOEurope), which did not correspond to economic reality. Almost all sales profits recorded by the two companies were internally attributed to a “head office”. The EC’s assessment showed that these “head offices” existed only on paper and could not have generated such profits. 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to the “head offices” were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force. 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 ASI.
The EC’s decision requires the recovery of illegal state aid for a ten-year period preceding its first request for information in 2013. Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest.
Following the release of the EC’s full decision, the Irish Department of Finance has issued a summary of its main lines of argument in Ireland’s annulment application lodged with the General Court of the EU in November 2016. Whilst it is understood that Apple has also filed an appeal before the General Court, neither appeal will suspend the recovery of the unpaid taxes.
If you would like further details on this case, please contact Keith Rushen on 0207 486 2378.
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