There is growing expectation a European Commission investigation will find that Apple benefitted from billions of euro in illegal state aid from the Irish Government.
The European Commission will tomorrow publish the original letter sent to the Irish Government in June outlining the terms of its investigation into Apple’s tax arrangement with the Irish Government.
A 30-day consultation period will then open, which will feed into the ongoing investigation.
While a final decision on Ireland’s tax dealings with Apple is at least a month away, EU sources in Brussels indicated this morning the commission is likely to find against Ireland.
However, in a statement this morning, the Government said: “Ireland is confident that there is no breach of state aid rules in this case and has already issued a formal response to the Commission earlier this month, addressing in detail the concerns and some misunderstandings contained in the ‘Opening Decision’.”
“ Ireland welcomed that opportunity to clarify important issues about the applicable tax law in this case and to explain that the company concerned did not receive selective treatment and was taxed fully in accordance with the law.”
The Government also said the Commission’s enquiry related to “a technical tax issue” in respect of this one company and did not relate to Ireland’s corporation tax rate or the Irish corporate tax system more generally.
“Later this week the Commission are due to publish the formal letter that was sent to the Irish authorities in June, setting out the ‘Opening Decision’ in this case. This is simply the next normal procedural step in the State aid investigation process.”
“ At this stage, the Commission has not formally decided that there is State aid, only that it is formally examining this case. It is expected that a final decision in relation to this investigation will take a considerable period of time,” it added.
The commission decided to open an in-depth investigation of arrangements between Apple and the Irish authorities dating back to 1991 as part of a wider crackdown on what Joaquín Almunia, the EU’s competition commissioner, has called “aggressive” multinational tax avoidance.
A report in the Financial Times stated that Apple benefitted from billions of euro in illegal state aid from the Government due to a tax rate of 2 per cent.
In an interview with the Financial Times, Apple’s chief financial officer denied that its deal with Ireland could be construed as state aid.
“There’s never been any special deal, there’s never been anything that would be construed as state aid,” Luca Maestri, Apple’s chief financial officer, told the Financial Times. Apple says it pays all the tax it owes.
EU investigators have based their case on whether Apple negotiated special tax treatment in Ireland that other companies do not enjoy.
“We were simply trying to understand what was the right amount of taxes that we would have to pay in Ireland,” Mr Maestri said of the agreements, describing Apple’s approach as “very responsible, transparent and prudent”.
Minister for Finance Michael Noonan is widely expected to announce decisive changes to Ireland’s corporate tax regime at next month’s budget, amid increasing pressure from Brussels, the US and the OECD.
The Government has also said it would “vigorously defend” itself in the case, possibly bringing the issue to the European Court of Justice, a move that would raise the spectre of a protracted legal battle with Brussels.
The European Commission opened the investigation in June into two individual tax rulings offered by Irish Revenue to two Irish subsidiaries – Apple Sales International and Apple Operations Europe.
At the time of the announcement of the investigation EU Competition Commissioner Joaquin Almunia said the Commission had “serious doubts” about the compatibility of the tax deal with EU treaty rules on state aid.
The investigation looks at transfer-pricing arrangements entered into by Apple.
Apple’s chief executive Tim Cook told a Senate Committee hearing last year that Apple had negotiated a special tax rate of less than 2 per cent with Ireland.
The State’s corporate tax rate is 12. 5 per cent.
A senate sub-committee report last year said that Ireland had “essentially functioned as a tax haven for Apple.”
The European Commission’s investigation centres on two tax deals offered to Apple by the Irish authorities in 1991 and 2007.
Luxembourg and the Netherlands are also being investigated for tax rulings offered to Fiat and Starbucks.
Legal curbs on state aid to companies are unique to the EU and Brussels has far-reaching powers to recover illegal support stretching back 10 years.
While the commission has not yet made a precise calculation of improper support, it is expected to reach billions of euros.
The accusation that Apple rode to riches totalling $137.7bn in offshore cash with the help of the Irish taxpayer will come as a blow to a company that has striven to burnish its image of corporate social responsibility in recent years.
He denied that the world’s most valuable company had agreed any “quid pro quo” to bring more jobs to Ireland in exchange for preferential tax treatment of its local subsidiaries.
“We know that we didn’t do anything that was against the law and we are very confident that through the investigation it will be shown that there was no selective treatment in our favour at any point in time,” Mr Maestri said.
The case hinges on two agreements between Apple and the Irish tax authorities, which the commission will argue amounted to special treatment because they did not meet the standards of an arms-length transaction between corporate subsidiaries.
After operating in Ireland tax-free since 1980, in 1991 Apple sought a meeting with the Irish authorities after a change in the law, Mr Maestri said. The resulting agreement lasted until 2007, an unusually long time for so-called transfer pricing agreements.
In 2007, after Apple’s sales and operations had expanded considerably, Ireland approached Apple to revise its tax arrangements to reflect the growth and new functions. Mr Maestri said it again sought an “advanced opinion” that would provide “complete certainty” about its tax liabilities.
The company has invested $100 million in its Irish operations in recent years, he noted, and is among Cork’s biggest employers.
Additional reporting: Financial Times