European Commission’s decision
The European Commission’s decision relates to two subsidiaries of Apple, Apple Sales International (ASI) and Apple Operations Europe (AOE). They are deemed to have received state aid of up to 13 billion Euro from Ireland between 2003 and 2014 based on two tax rulings applicable to Apple. Accordingly, Ireland must demand repayment plus interest from Apple. The recovery period begins ten years before the first information request (2013) and ends in 2014 because Apple changed its structure in that year and hence the questionable tax rulings ceased to have effect. The European Commission underlines that it is not imposing a punishment or fine with this repayment demand but that it will just restore a level playing field. Furthermore, neither the Irish tax system nor the Irish corporate income tax rate of 12.5% is brought into question.
Reasons for the decision
In its decision the European Commission criticises Ireland for approving an allocation of profit based purely on tax considerations with the tax rulings. Both ASI and AOE transferred considerable portions of their profit to administrative entities which were not established anywhere and thus were also not subject to tax anywhere. For instance, ASI booked a profit of around 16 billion Euro in 2011. Of this, 15.95 billion Euro were transferred to the administrative entity and only 50 million Euro were subject to tax in Ireland.
The European Commission is also critical that the administrative entities did not perform any real economic activity. According to the European Commission’s findings, they had neither their own business premises nor employees during the period investigated. Instead, only the Irish establishments of ASI and AOE were found to have sufficient capacities and organisational structures to deal with the revenues realised.
Irish Finance Minister Michael Noonan confirmed the Commission’s findings in the Irish parliament to the extent that the companies in question were not resident in Ireland for tax purposes. At the same time, he emphasised that these companies were also liable to pay tax on profits actually generated in Ireland. As a result, the Irish Finance Minister has been tasked by the government to challenge the decision at the European courts. He fears that Ireland will suffer a serious loss of reputation; on the one hand, vis-à-vis other States, e.g. in negotiations on double taxation agreements or for calculation of any additional taxation, on the other hand also vis-à-vis international companies planning investments in Ireland.
According to article 16 of Council Regulation 2015/1589 of 13 July 2015 laying down detailed rules for the application of article 108 of the Treaty on the Functioning of the European Union, unlawful aid plus interest must be recovered. This is also what the Commission demands in its decision.
Nevertheless, Ireland has decided to challenge the Commission’s decision in court. And the European Court of Justice (ECJ) has already created a precedent with its 2005 judgement on the closure of Belgian coordination centres in which it waived repayment of the aid. ECJ confirmed that the disputed measures constituted state aid incompatible with the single market. Yet it also ruled that the affected parties should have been able to have a justified confidence in an appropriate transition period.
The opposition in the Irish parliament is critical of the government’s stance and complains that 104 billion Euro has been transferred out of Ireland untaxed. Nevertheless, the Irish government’s motivation for waiving reimbursement by Apple may also be prompted by the fact that the possible additional revenue cannot be used to finance current expenditure such as wages and salaries or social benefits. Under the EU’s budget principles, windfall profits can be used only for spending on the capital account, for example debt repayment or public investments.