On 30th August 2016, the European Union published the results of an investigation which established that in the case of the payment of taxes by Apple in Ireland, European laws in respect of state aid were breached. This meant that Apple was able to profit from tax benefits of up to 13 billion Euro.
In accordance with the European regulations which control state aid, this is a matter of illegal aid, which Ireland must ask Apple to return.
We refer to the article “Tax Rulings” published on our website on 2nd September 2016 which deals with the background to this matter.
Margaretje Vestager, the EU Commissioner responsible for competition policy, stated “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.”
During the investigation into state aid, launched in June 2014, two tax rulings issued to Apple by Ireland were discovered. Said rulings, contained an artificial and substantial reduction in the taxes to be paid in Ireland by Apple as from 1991, accepting a method for determining the taxable profits of two companies belonging to the Apple group (Apple Sales International and Apple Operations Europe), which did not reflect economic reality. With said method, almost the totality of the profits generated by both companies were distributed internally to a “central administration” which only really existed on paper, and which would not have been able to generate such profits. Said profits distributed to a “central administration” were not subject to tax in any country under the provisions of Irish tax law, which are no longer in force.
The illegality of such events in accordance with the regulations on state aid in the EU is obvious, in that Apple is granted a significant advantage in comparison with other companies subject to the same tax regulations, but which were not recipients of such tax rulings.
Consequently, the Commission may order the recuperation of illegal state aid corresponding to the period of ten years previous to the first request for information dating from 2013. This means that Ireland shall now have to recover up to 13 billion Euro, plus interest, which Apple should have paid in the years between 2003 and 2014.
The period of recovery ends in the year 2014, since in 2015 Apple changed its structure in Ireland and the referred to tax ruling is no longer applicable.
Said recuperation is not a fine, but a measure to eliminate the distortion of competition which has been caused.
Ireland does not agree with the Commission’s decision and as per the vote taken in the Irish Parliament, it shall appeal before the European Court of Justice. In this case, Ireland shall have to proceed with the recovery of the illegal state aid, but may assign the amount recovered to a frozen account while it awaits the conclusion of the EU judicial procedures.
Pina Pohl
Vilá Abogados
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30th September 2016
