EUR 13 bn Ireland tax aid to Apple illegal, says EU

(BRUSSELS) - Ireland must recover undue tax benefits of up to EUR 13 bn granted to Apple, the EU Commission said Tuesday. This is illegal under EU state aid rules, as it allowed Apple to pay substantially less tax than other businesses.

The in-depth state aid investigation, which the Commission began in 2014, concluded that two tax rulings issued by Ireland to Apple "substantially and artificially" lowered tax paid by Apple in Ireland since 1991.

The Irish rulings allowed Apple to account for taxable profits through two Irish incorporated companies of the Apple group (Apple Sales International and Apple Operations Europe), which the EU executive says "did not correspond to economic reality".

This was because almost all sales profits recorded by the two companies were internally attributed to a "head office".

The Commission says the "head offices" existed only on paper and could not have generated such profits.

The profits allocated to the "head offices" were not, it says, subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force.

The result was that Apple paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014 on the profits of Apple Sales International.

"Member States cannot give tax benefits to selected companies", said Competition Commissioner Margrethe Vestager, "this is illegal under EU state aid rules. The Commission's investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years."

Apple's tax treatment in Ireland enabled the company to avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market.

Apple recorded all sales in Ireland rather than in the countries where the products were sold.

The Commission can order recovery of illegal state aid for a ten-year period preceding the Commission's first request for information in 2013.

It says Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest.

The Commission says the tax structure is outside the remit of EU state aid control, but it goes on to say that if other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland.

The ruling has not surprisingly been condemned by the US Treasury which says the EU tax investigations are "unfair" and undermine the tax rules of individual countries.

However, many are welcoming the ruling as a serious attempt to curtail the power of large multinationals in avoiding their tax liabilities. Louise Gracia, of Warwick Business School, a Professorial Teaching Fellow in the Accounting Group and researches tax regulation, says: "The average person probably has a right to challenge the reasonableness of Ireland facilitating Apple to pay so little tax on its European profits. Given that large multinationals work and operate across countries, using the infrastructure and labour within those countries there is an implicit fairness in requiring them to pay tax on the profits generated within a country, in that country.

Commission's task

As a matter of principle, EU state aid rules require that incompatible state aid is recovered in order to remove the distortion of competition created by the aid. There are no fines under EU State aid rules and recovery does not penalise the company in question. It simply restores equal treatment with other companies.

Other cases

The Commission has been investigating EU Member States' tax ruling practices since 2013. It extended this information inquiry to all Member States in December 2014. In October 2015, the Commission concluded that Luxembourg and the Netherlands had granted selective tax advantages to Fiat and Starbucks, respectively. In January 2016, the Commission concluded that selective tax advantages granted by Belgium to least 35 multinationals, mainly from the EU, under its "excess profit" tax scheme are illegal under EU state aid rules. The Commission also has two ongoing in-depth investigations into concerns that tax rulings may give rise to state aid issues in Luxembourg, as regards Amazon and McDonald's.

Further information

The non-confidential version of the decisions will be made available under the case number SA.38373 in the State aid register on the DG Competition website once any confidentiality issues have been resolved. The State Aid Weekly e-News lists new publications of State aid decisions on the internet and in the EU Official Journal.