The European Commission (Commission) announced its final decision in the formal state aid investigation into two advance pricing agreements (APAs) obtained by Apple in Ireland. It is the Commission’s view that the APAs constitute illegal state aid, as they effectively enabled Apple to pay less taxes than other taxpayers in a similar legal and factual situation. The Commission claims the APAs unduly reduced Apple’s tax burden by EUR 13 billion. It now requires Ireland to recover such amount (plus interest) from Apple.
The granting of State aid that may distort competition by favouring certain undertakings, is incompatible with the EU Single Market and is forbidden by EU law. The Commission’s decision in the Apple case can be challenged before the Court of Justice of the European Union by the Member State involved (Ireland), other Member States, the beneficiary (Apple) and other parties who are directly and individually concerned.
The Commission finds that the APAs obtained by Apple endorsed a methodology that was not appropriate for allocating taxable profits in line with economic reality. The APAs confirmed that nearly all sales profits recorded by two Irish incorporated but non-Irish resident companies of the Apple group were attributable to head offices outside Ireland. As a result, Apple only paid a marginal effective corporate tax rate in Ireland. In the Commission's view these head offices existed only on paper and could not have generated such sales profits.
The Commission has set out in its decision the methodology to calculate the value of the undue competitive advantage enjoyed by Apple. In particular, Ireland must allocate to the Irish branch of each company all profits from sales previously indirectly allocated to the head offices and apply the normal corporation tax in Ireland on these re-allocated profits. The amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the sales profits recorded by the two Irish companies or if the US were to require an increased contribution of the two companies to Apple’s R&D expenditure. Notably, the decision does not ask for the reallocation of any interest income of the two companies that can be associated with the head offices.
The Irish Minister of Finance issued a press release today stating that he disagrees with the Commission that state aid was granted and will now seek Cabinet approval to appeal the decision.
The announcement of the final decision confirms that the Commission remains determined to challenge potential state aid elements embedded in tax rulings. The non-confidential version of the final decision will not be published until confidentiality issues have been resolved.
The announcement by the Commission in relation to the Apple final decision can be found here. The press release of the Irish government can be found here.
Two other formal state aid investigations into individual tax rulings are still ongoing involving Amazon (Luxembourg) and McDonald’s (Luxembourg). More formal state aid investigations in relation to tax rulings can furthermore be expected to follow.
