Ireland ‘blindingly accepted’ Apple tax plan, EU commission says
State argues commission failed to show Apple received selective tax advantage
Lawyers for the Government have argued that Revenue was obliged only to look at the Apple Irish branches under national laws.
Ireland “blindingly accepted” proposals from Apple when it came to how much of its profits could be taxed by Revenue, according to a lawyer for the European Commission (EC), which decided in 2016 that the iPhone maker had received €13 billion of illegal state aid from the State.
Paul-John Loewenthal, a lawyer for the commission, was speaking in the European Union’s second-highest court, the General Court in Luxembourg, on Wednesday, on the second of two days of hearings relating to appeals by Apple and the Republic against the decision.
The commission has claimed that Revenue gave the Californian technology giant an unfair advantage in two “rulings”, in 1991 and 2007, which allowed it to channel most of its European sales through employee-less shell “head office” parts of two group subsidiaries in Cork, which were non-resident for tax purposes.
The units were known as Apple Sales Ireland (ASI) and Apple Operations Europe (AOE). Only profits allocated to Irish “branches” within the two subsidiaries were taxed in the State.
Mr Loewenthal said that Revenue “blindingly accepted” Apple’s proposals of what profits were taxable in Ireland, as the authorities only looked at activities of the local branches, rather than how they interacted with the head offices. He said that this, in itself, conferred an advantage on to Apple.
Lawyers for the Government have argued that Revenue was obliged to look only at the Irish branches under national laws.
In his closing argument, Paul Gallagher, a barrister representing the Government, said the commission had failed to show that Apple had received a selective tax advantage.
“The commission ultimately fails to come to grips with something that’s very simple. They ignore the fact that, ultimately, they have to prove that there is an advantage. That’s not something that can be assumed,” he said. “They weren’t able to say that there was one company that was treated less favourably than Apple.”
He added: “The idea that Ireland would have forgone €13 billion of tax that could have been levied is without basis and an absurd proposition.”
Daniel Beard, a lawyer for Apple, insisted that the valuable intellectual property (IP) that the commission has attributed to the ASI and AOE branches in Ireland actually lies in the US, where the group’s products and services are created. This pushed the weight of tax liabilities to the US, he said.
Mr Beard said the commission’s view that the Irish branch of ASI should hold the IP was because it engages in localisation, or translation services to be able to sell Apple internationally; it is a base for AppleCare; and it has a quality-control function.
However, he argued that localisation did not involve the creation of IP, while AppleCare was merely a “low-risk call centre”, and that quality control was carried out by one person in Cork. Apple currently employs about 6,000 people in Ireland.
Still, Richard Lyal, a lawyer for the commission, said Apple had consistently downplayed the significance of Irish branches, minimising the tax paid to Revenue.
“Apple should not pretend that ASI and AOE make all the money but only a tiny portion of that should be made in Ireland,” he said, adding that all the “concrete operations” of both companies are in the Republic.
While the commission’s decision is under appeal, the Government last year complied with an order that it collect the €13 billion, plus €1.3 billion of interest, and put it into escrow. It is widely expected that the General Court’s ruling, expected as early as the end of this year, will be appealed.