On 30 August 2016, the Commission concluded that two consecutive tax rulings granted by Ireland to Apple in 1991 and 2007, respectively, amounted to illegal state aid and ordered Ireland to recover the unpaid taxes from Apple for the years 2003 to 2014 amounting to €13bn (ca.£11bn), plus interest.
The Commission held that Apple’s structure in Ireland did not correspond to economic reality as the greater part of the profits recorded by two Irish Apple subsidiaries were internally allocated outside Ireland to head offices that existed only on paper and that the profits so allocated were not subject to tax in any country. According to the Commission’s findings, as a result of the tax rulings granted by Ireland, Apple’s effective corporate tax rate was reduced from 1% in 2003 to 0.005% in 2014.
The Commission held that Ireland’s tax rulings endorsed an artificial allocation of profits, which had no factual or economic justification, enabling Apple to pay substantially less tax than other companies, which is not legal under EU state aid rules. Allocation of profits within a corporate group must, according to the Commission, be commercial and comply with the arm’s length principle.
It has been reported that both Ireland and Apple will appeal the Commission’s decision.
The Commission’s press release is available here. The full decision has yet to be published. From the press release it appears that the Commission has developed its new approach to the arm’s length test seen recently in the Starbucks ruling, namely, that provisions which on their face appear to introduce a recognised arm’s length test will nevertheless offend state aid rules where they permit artificial arrangements to benefit to the selective advantage of multinational groups over domestic ones. How the Court addresses this line of cases will be of considerable importance to any multinationals seeking transfer pricing rulings around the EU.
This article appears in the JHA August 2016 Tax Newsletter, which also features:
