State’s tax treatment of multinationals ‘inconsistent’, EU says

Multinational companies in the Republic have been taxed on "inconsistent" basis when it comes to profits attributable to activities in the State and elsewhere within the groups, the European Commission (EC) said, as it published details of its €13 billion tax finding against Apple in Ireland.

The EU ruled in August that Apple had received an unfair, "selective" advantage in the way Revenue Commissioners allowed it – in "tax rulings" in 1991 and 2007 – to allocate profit to activities in two Irish-based companies: Apple Operations Europe (AOE) and Apple Sales International (ASI). Most of Apple's profits were allocated to the head office part of the companies, which were non-resident from a tax point of view, rather than the Irish branches.

In a 130-page document published on Monday, detailing the ruling, the EC revealed that it had reviewed 11 other tax rulings relating to companies with similar structures to Apple, which involved splitting profits within companies.

It said that, having reviewed a number of Irish tax rulings, it “was unable to identify any consistent set of rules that generally apply on the basis of objective criteria to all non-resident companies operating through a branch in Ireland.”

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The EC added: “In other words, Irish Revenue’s profit allocation ruling practice is too inconsistent to constitute an appropriate reference system against which the contested rulings could be examined for determining whether ASI and AOE received a selective advantage.”

EC compares companies

The 11 examples the European Commission gave include:

1. A February 1998 ruling involving an Irish branch of an unnamed multinational group, Company B, accepted a proposal by the company’s tax adviser that taxable income for the branch would equal 117 per cent of its total costs, including costs of sales and overheads

2. The Irish branch of another multinational, Company C, was allowed in May 2001 to calculate taxable profit as no more than 9 per cent of the costs of an administrative shared service centre to be located in Ireland

3. A May 2003 decision allows that the Irish branch of Company A, part of another multinational, be taxable on 12.5 per cent of all profits of the company. Although control over sales and marking and intellectual property ownership are all based outside Ireland, and the group does not consider the Irish branch as a pure “contract manufacturer”, the State was considered a key location for the supply of the group’s products.

The commission said there were a number of discrepancies in the rulings. “The choice of methods [of profit allocation in Ireland] is not systematic, even though the activities being described are similar,” it said.

The commission concluded that the contested Apple rulings “were issued on the basis of Irish Revenue’s discretion in the absence of objective criteria related to the tax system and that, therefore, those rulings should be considered to confer a selective tax advantage on ASI and AOE”.