Tax rulings against Fiat and Starbucks fuel fears in Dublin

Tax rulings in Brussels against Fiat in Luxembourg and Starbucks in the Netherlands underscores pressure on Dublin as the European Commission prepares to hand down its long-awaited ruling on Apple’s arrangements in Ireland.

The two companies must each pay as much as €30 million in back taxes after EU competition commissioner Margrethe Vestager said they received illegal state aid from the Luxembourgish and Dutch governments.

After prolonged inquiries, Vestager found Luxembourg granted “selective tax advantages” to Fiat’s financing company and Starbucks’ coffee roasting company received the same from the Netherlands. “In each case, a tax ruling issued by the respective national tax authority artificially lowered the tax paid by the company,” the commission said.

Appeals against these rulings are inevitable, although the findings were seized on by tax campaigners as evidence of wider evasion by big corporates. Vestager suggested as much herself. “More cases may come if we have indications that EU state aid rules are not being complied with,” she said.

‘Selective’ advantage

At issue in the Irish context is whether the commissioner follows these rulings with adverse findings against Apple and Ireland. The investigation has been under way since mid-2014. Preliminary findings by the commission suggest Apple, creator of the iPhone, received a “selective” advantage from the Revenue in tax opinions in 1991 and 2007.

This is strenuously denied by the Government and Apple, although the Fiat and Starbucks rulings have intensified expectation a negative decision is on the way. The Government has already resolved to challenge any such decision in the European Court of Justice but such an outcome would deal a blow to Ireland’s corporate tax regime.

One high-level figure speaks of the commissioner dropping a “bomb” on Dublin. Another person acknowledged “something nasty” may be in prospect but said the question turns on “how nasty”. This centres on the scale of any taxes to be recovered from Apple and whether recovery would be necessary while an appeal is pending.

The huge benefit Apple derives from its arrangement in Ireland is such the €30 million payments by Fiat and Starbucks could look very small. JP Morgan, which has Apple as an investment banking client, estimated earlier this year the company might be on the hook for $19 billion (€16.7 billion). While JP Morgan recognised this estimate flowed from a somewhat “simplistic” assessment, calculations point to high stakes.

Dublin has been arguing it co-operated fully with the investigation in Brussels and provided numerous boxes of Revenue files. The implication is that there is nothing whatever to hide. Another argument is that any deal conferring special benefit to Apple would be illegal under Irish law, ie the very opposite of the kind of arrangement the Revenue would enter into.

The Apple decision is expected in November.