The European Commission’s inquiry into Apple’s arrangements in Ireland centres on two tax “opinions” handed down by the Revenue in 1991 and 2007, it has emerged.
Outgoing competition commissioner Joaquin Almunia will set out the basis for the investigation in the EU Official Journal on Monday, opening a 30-day window for interested parties to respond. In question is whether the tax arrangements conferred illegal state-aid to Apple. The Government has always argued the inquiry is groundless, saying it will vigorously contest all elements of the complaint.
It is understood Apple will contest that the complaint is “baseless” and “profoundly wrong” in respect of Irish-based subsidiaries Apple Operations Europe (AOE) and Apple Sales International.
It is further understood that Apple will argue that Revenue always adopted an appropriately “aggressive” stance in its engagements with the company.
Heavily criticised
Apple, which has had an Irish operation since 1980, was heavily criticised last year after a subcommittee of the US Senate heard it was paying a 2 per cent corporate tax rate in Ireland. The company’s position is that this was an unfair description of its business, that it pays an effective 20 per cent tax rate globally and has been paying the statutory tax rate on the profit made by AOE.
The 1991 Revenue opinion to Apple followed the termination of the Export Relief Act of 1956, under which no company paid corporate tax in Ireland on the profit from products made here for export.
At that time Apple employed about 1,000 people in Cork and its activities were focused on manufacturing computer hardware, together with distribution, procurement and administrative activities.
The 2007 Revenue opinion followed the enlargement of Apple’s operation in Cork, which then employed 4,000 staff and whose manufacturing process has increased in complexity.The opinion came at a time when Apple was introducing the iPhone, which revolutionised the global mobile phone market.
At issue in both aspects of the commission’s complaint are the “transfer pricing” rules applied by the Revenue to Apple. These relate to the practice of shifting profits between entities within a company to minimise the corporate tax eventually paid. In some respects at least, the commission complaint is known to draw on standards the OECD adopted in 2010 on the taxation of profits realised by international branches of large global companies.
This aspect of the complaint is likely to be a point of attack against the commission as both Revenue opinions in respect of Apple were made before the OECD standards took force.
The Department of Finance and the Revenue had nothing to say yesterday about the inquiry. A spokeswoman for Mr Almunia’s official said the commission will on Monday publish a non-confidential version of the letter issued to the Government following his decision in June to proceed with the inquiry.
Special treatment
Apple argued at the outset of the inquiry that it never received any special tax deal from Ireland or special treatment from Irish officials. The firm also said it was subject to the same tax laws as all other international firms in Ireland.
Mr Almunia has concerns that Apple received a form of selective treatment.
However, it is understood the company will argue that it went to Revenue in good faith to seek the certainty of a ruling on the application of tax law in respect of its business here.
Apple is further understood to be preparing to argue that both Revenue opinions reflect a principled and objective application of Irish law to its operations. It is also likely to argue that it engaged in lengthy talks with Revenue to arrive at that point.
Such examinations included an effort to model Apple’s profit in Ireland if it used contract manufacturers, the objective being to assess how much tax it would pay here if manufacturing was carried out by a third party firm. It is understood Apple will argue that Revenue was very forceful in 1991 in its push for the application of a very high profit margin for the relevant division of the company.
