Irish Apple Escrow Fund shrinks amid negative rates and tax paid elsewhere

State set up the account in 2018 to hold €14.3bn of alleged back taxes and interest from Apple

The value of the Ireland Apple Escrow Fund fell by €351 million last year to €13.6 billion as money was taken out by the technology giant to pay a tax bill elsewhere and as the account took another hit from negative interest rates applied to its investments in highly-rated euro-zone Government bonds.

A pervasive negative rates environment last year, a result of European Central Bank monetary policy, where bond investors pay borrowers for the luxury of taking their money, drove a €105 million decline in the value of the fund in 2021, the Department of Finance said on Thursday.

Last year also saw about €245 million transferred from the fund to pay tax in another jurisdiction, as allowed under the terms of the escrow account.

The State set up the escrow account in 2018 to hold €14.3 billion of alleged back taxes and interest that the European Commission ordered it to collect from Apple, even as the State and the iPhone maker appealed the matter before the courts in Luxembourg.

In July 2020, the European Union’s General Court ruled that the commission “did not succeed in showing the requisite legal standard” that Apple’s arrangements in Ireland amounted to illegal benefits from the State.

However, the commission moved that September to appeal that decision to the European Court of Justice, the highest EU court. There is an expectation that the appeal may be heard later this year.

Funds in the account, which are mainly held by way of bond investments rather than cash, will be released at the end of legal proceedings. The National Treasury Management Agency was responsible for setting up the escrow account, with the fund’s investment committee comprised of officials from the agency and Apple. The winning side of the legal case will have to accept any investment losses, or benefit from any gains, accrued during the lifespan of the fund.

The prevailing negative-rate environment for euro-zone Government bonds in recent years came to an end in 2022 as markets started pricing in the prospect of the ECB being forced to hike official rates to control soaring inflation.

The yield on benchmark 10-year German government bonds has swung from minus 0.3 per cent a year ago to 1.26 per cent as of Thursday. Similar Irish bonds are currently yielding 1.89 per cent, having been in negative territory early last year.

Negative rates had already wiped €76 million off the value of the escrow fund between 2019 and 2020. Apple also withdrew €209 million from the account in 2019 to pay tax in another country.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times