This week, it’s expected the EU will rule that Apple and the Irish Government did indeed operate a sweetheart deal that amounted to state aid for the multinational’s operation here. In theory, this could put Cupertino on the hook for over €1 billion in back taxes – money the state has little interest in collecting.
Apple’s tax arrangements with Ireland were last front page news back in April 2015 thanks to a reference in the company’s filing for the quarter ending 28 March 2015 to the Securities and Exchange Commission on 28 April 2015. In the filing, under the heading Provision for income taxes, Apple refers to the European Commission’s decision to begin a formal investigation against Ireland for alleged state aid to the company on 11 June 2014.
It states: “The opening decision concerns the allocation of profits for taxation purposes of the Irish branches of two subsidiaries of the Company [Apple]. The Company believes the European Commission’s assertions are without merit.”
Despite its disavowal of the case, Apple admits that if the European Commission does rule against Ireland, “the European Commission could require Ireland to recover from the Company past taxes covering a period of up to 10 years reflective of the disallowed state aid”. It reveals that the amount “could be material” but is unable to estimate the impact.
This is all very embarrassing for Apple, of course, but it’s positively mortifying for the Irish government. At least I assume that must be the case because the Government is vigorously defending its arrangements with Apple and, in the process, rejecting the opportunity for a multi-billion euro windfall.
Back in October 2014, the Government dismissed the EC’s decision and expressed its confidence “that there is no breach of state aid rules in this case”. The Government revealed it had also responded to the Commission, “addressing in detail the concerns and some misunderstandings contained in the opening decision”. It added that Apple “did not receive selective treatment and was taxed fully in accordance with the law”.
Pretty unequivocal, right? Obviously nothing to see here, so let’s all just move along. Thanks Irish government for clearing that up for us, we won’t be asking any more awkward questions. Hopefully, the EC will come back with the right decision soon and we can all get back to doing what we were doing in letting multinationals pay lower corporate tax rates than indigenous businesses like we did before.
But heres a funny thing. If you go back and look at Apples filing to the SEC on 28 January 2015 for the quarter ending 27 December 2014 and scroll down to the section headlined ‘provision for income taxes’ guess what? There’s not one mention of the EC case. Nothing. Not a paragraph, not even a sentence.
If you care to delve further back, to Apple’s filing for the fourth quarter and year ending 27 September 2014, lodged with the SEC on 27 October 2014, which is almost four weeks after news of the EC investigation emerged and four months after the company was informed of the decision, and scroll down to the provision for income taxes section you will find nary a word about it.
Windfall
When I looked at this issue back in October 2014, I said that many in Ireland would be only too happy for the Government to receive a multi-billion euro windfall in these straitened times.
The interesting aspect of the EC investigation is not only the unexpected (and from the Government’s point of view unwelcome) windfall it may bring but also the wider implications. In its defence against the EC in October, Apple stated it was “subject to the same tax laws as the countless other companies who do business in Ireland”. Now, it occurs to me that if Apple is correct in this assumption and the EC finds that it did receive unlawful aid, the same could well apply to a fair number of other multinationals operating here.
In other words, if the EC proves its charge of unlawful aid, many other businesses will be forced to return their unlawful aid and Ireland will be in for a huge windfall. Sounds great, doesnt it? Billions of euro coming to Ireland and we will have had to do absolutely nothing to get it. Who says the EU is a bad thing?
But of course, that’s not quite right because if the windfall cheque ever does arrive – swiftly followed by a flood of others – it will only be after the Government has done everything in its power to try and stop it.
A version of this article appeared in the May 2015 edition of TechPro magazine. The text has been updated to reflect recent events.
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