Apple’s back-tax: a self-professed tax nerd gives her take

Yesterday's Irish Times report on Apple's warning to shareholders that it might end up paying more tax arising from the European Commission's inquiry into alleged state aid was picked up around the world.

It also sparked a short Twitter conversation between Aisling Donohue, of O'Boyle & Co, accountants in Longford, and economist Séamus Coffey. On Twitter, she describes herself as tax nerd.

Donohue pointed to paragraph 38 of the letter the commission sent to the Irish Government in June, advising it of its view that tax rulings with Apple constituted state aid. It was the contents of this paragraph, she said, that made her think the whole episode could end in tears.

In that paragraph, it is noted that at a meeting between an Apple tax agent and a Revenue official in 1991 it was outlined that the accounts of an Irish branch of an Apple subsidiary showed it made a net profit of $269 million in 1989, on a turnover of $751 million. However, these figures from the accounts were not taken as the base point from which to begin a debate on how much tax the branch should pay. Instead the Revenue was willing to discuss the computation involving “a profit figure for the Irish branch based on a percentage of the actual costs attributable to the Irish branch”.

For Donohue, this is the point where the tax ruling may well fall. She thinks the debate shifted from the standard starting point, the accounts, to a way of addressing the issue more favourable to Apple.

Interestingly, in conversation with The Irish Times, she wondered whether, given the large amounts of money involved, the US Internal Revenue Service might try to snaffle any tax revenue it decides is in play.

It should be noted, however, that Apple itself, in its risk factors note to its annual accounts, said it could end up having to pay back tax to Ireland. There was no mention of back tax to Washington.

Donohue thinks Apple would have been better off paying some extra 12.5 per cent tax in Ireland earlier in the debate to head off any ambush from the IRS. She also thinks other multinationals here might be wise to consider that fact.