European Commission says Ireland not obligated to use Apple tax cash for national debt

The European Commission has said there is no legal obligation for countries to use recovered state aid to pay down national debt.

Speaking in Brussels on Wednesday, in the wake of a record ruling by the commission against Apple, a spokesman for commissioner Margrethe Vestager said that, like all state aid cases, "the amounts that are recovered by a member state in a state aid investigation simply go back to the member state's budget, and they can then, of course, use it for their own decisions."

EU sources told The Irish Times that, while the commission could not legally instruct Ireland how to use the recovered aid, it would likely strongly recommend that any windfall gains are used to pay down the national debt.

In its most recent country-specific recommendation for Ireland, which marked Ireland’s exit from the EU’s excessive deficit procedure, the commission said Ireland should “use windfall gains from strong economic and financial conditions, as well as from asset sales, to accelerate debt reduction”.

In addition, the country should “reduce vulnerability to economic fluctuations and shocks, inter alia by broadening the tax base . . . enhance the quality of expenditure, particularly by increasing cost-effectiveness of health care and by prioritising government capital expenditure in R&D and in public infrastructure, in particular transport, water services and housing.”

Policy recommendation

A high-ranking source in the European Commission said there is a “policy recommendation, not a legally binding requirement”, that Ireland should use any windfall cash for debt reduction.

He pointed to the “long-standing policy recommendation” of the commission that Ireland’s high level of debt should be reduced with any windfall, rather than using the cash for current or capital spending. This was reiterated as recently as earlier this year when the commission published its recommendations for Ireland.

They found that Ireland should use “windfall gains from strong economic and financial conditions, as well as from asset sales, to accelerate debt reduction”.

This is not a legal requirement, although any budget spending would have to conform to EU rules that limit the amount of current spending increases in any given year.

The revelation is likely to strengthen the hand of those arguing for the Government to retain the Apple cash. Government Ministers had previously insisted that even if Ireland kept the money, it would have to be all used for deficit reduction.

While the established procedure in EU state aid cases is that recovered money returns to the national exchequer, officials pointed out that the Apple ruling is unprecedented in size.

The previous record for an EU state aid judgment was a €1.3 billion ruling in 2014 involving Nürburgring racetrack in Germany.

The Apple judgment is also the first finding of its kind since the EU’s two-pack and six-pack rules were introduced at the height of the financial crisis. Like other bailout countries, Ireland is subject to additional layers of fiscal scrutiny because it is continuing to repay bailout loans to other euro zone member states through the ESM fund.

All euro zone countries must submit their budgets to the European Commission by October 15th this year.

Artificial reduction

After more than three years of investigations, the commission ruled on Tuesday that Ireland had helped Apple to artificially reduce its tax burden for more than two decades through two tax rulings it offered the company in 1991 and 2007.

EU politicians widely welcomed the European Commission’s decision. The centre-left Socialist and Democrats group in the European Parliament congratulated the commission on the finding and called on the EU to establish a common corporate consolidated tax base (CCCTB) that would be mandatory across the EU. Ireland has previously opposed such a move. A revised CCCTB proposal is expected from the commission by the end of the year.

The payment of €13 billion, plus interest, demanded by the European Commission covers the years 2003-2014. Ireland will be permitted to keep the payment in an escrow account pending appeal.

An appeal by Ireland and Apple could take up to six years, according to European Commission officials, as it is likely to go through both the General Court and European Court of Justice.