A bite out of Apple

 

The European Commission (EC) has formed a “preliminary view” that two tax rulings sought by Apple, and agreed by Revenue, amounted to illegal state aid, and therefore gave the company a “selective advantage” over competitors. The full facts, however, have yet to be established, and the legality of the tax arrangements decided. The Government has strongly denied that Apple received a special deal from Revenue, and said it would “vigorously contest” an adverse ruling in the European Court of Justice. Apple yesterday denied it had received “selective treatment from Irish officials over the years”.

Last June the commission announced a formal state aid investigation into Apple’s Irish tax affairs: yesterday, it outlined the case, on which it has based its preliminary view, that Ireland acted illegally. The Government will now present a detailed defence to the commission’s claims, and to its charge that Apple received special preferential treatment on tax in 1991 and in 2007. The investigation could take months – if not years – as lengthy investigations into Microsoft and Google have shown. Ireland is not alone under scrutiny: the commission is also investigating whether tax deals granted to Fiat in Luxembourg and Starbucks in the Netherlands represented illegal state support for those companies.

Undoubtedly, Ireland has suffered reputational damage from the tax controversy, which began last year in the US, when Apple told a Senate subcommittee that it had negotiated a special deal with the Irish Government on tax – a statement Apple subsequently retracted. At the Senate hearings, Apple also claimed that some parts of its Irish operation were “stateless” for tax purposes. Both revelations no doubt prompted the European Commission to investigate a breach of state aid rules.

The uncertainty that surrounds the outcome of the state aid case could have a negative effect on the State’s ability to attract inward investment. An adverse finding against the State in the Apple case could prompt the commission to investigate the Irish tax arrangements of other multinational companies – such as Google. Ireland remains highly dependent on the multinational sector, both for jobs and for tax revenue. Last year the top 10 multinationals in Ireland accounted for close to 40 per cent of total corporation tax revenue. And in Cork, Apple with 4,000 employees is the city’s biggest employer.

If, ultimately, it is decided that Ireland’s tax rulings were illegal state aid, the commission could order that Apple should then pay the tax due, and that Ireland should recover from the company, the tax owed. That – despite the clear tax windfall – would also be the worst outcome. Ireland’s financial reputation would be badly tarnished, and its ability to attract large overseas investment greatly diminished.