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Apple and Ireland defend tax rulings

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2nd Oct 2014
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The Irish government has defended two tax rulings given to the Apple group in 1991 and 2007 after a European Commission decision published this week suggested that Apple may have received illegal state aid. The company said it had received “no selective treatment”.

The decision concerns advance pricing arrangements (APAs) which validate transfer pricing arrangements. APAs are intended to “supplement the traditional administrative, judicial and treaty mechanisms for resolving transfer pricing issues”, the EC noted.

However, EC vice president Joaquín Almunia, who is in charge of competition policy, said the EC’s preliminary view is that the rulings in favour of the Apple group constitute state aid. “The Commission has doubts about the compatibility of such state aid with the internal market,” he said.

His letter to the Irish government, dated 11 June, said: “[The] Commission is of the opinion that the contested rulings do not comply with the arm’s length principle. Accordingly, the Commission is of the opinion that through those rulings the Irish authorities confer an advantage on Apple. That advantage is obtained every year and on-going, when the annual tax liability is agreed upon by the tax authorities in view of that ruling.”

The Financial Times quoted Apple’s CFO Luca Maestri as saying: “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 there [were] no selective treatments in our favour at any point in time.”

The Times noted that if the EC’s view is upheld after investigations “it could order Apple to repay billions of pounds, because the company channels the bulk of its international sales through subsidiaries in Ireland”.

Heather Self, a tax partner at the law firm Pinsent Masons, said one area of concern highlighted by the EC decision was the length of the APAs. The 1991 agreement with Ireland lasted 16 years, compared to arrangements in other European countries that “the EU cites as typically lasting for no more than five years”.

“Clearly during that time the company changed significantly: the launch of the iPod in 2001 took it into completely new consumer markets,” she added.

Pinsent Masons said that if the EC rules that a member state has given unlawful state aid, any company found to have benefited has to pay back any illegal reliefs granted over a period usually covering up to 10 years.

Ireland’s department of finance said in a statement: “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.”

It added: “The enquiry relates to a technical tax issue in respect of this one company and does not relate to Ireland’s corporation tax rate or the Irish corporate tax system more generally … 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. The purpose of the publication of the opening decision is to give interested parties the opportunity to submit comments directly to the EC.

“As this is an ongoing legal process, Ireland will not be commenting further on any individual aspects of this case.”

The EC is also investigating Luxembourg and the Netherlands, in relation to agreements reached with Fiat and Starbucks respectively.

The investigations will provide support for the OECD’s BEPS project and the need to revise the current international tax regime, the ICAEW Tax Faculty noted today. “The Irish government will present its Budget on 14 October and it is under quite significant international pressure to make revisions to the current domestic tax rules,” the Faculty said.

Gibraltar

The EC announced yesterday that it has extended the scope of an investigation opened last year to establish whether Gibraltar’s corporate tax regime “selectively favours certain categories of companies, in breach of EU state aid rules”.

It will now examine a tax rulings practice allowing companies to request advance confirmation of “whether certain income, generated by companies incorporated in Gibraltar or [companies] that carried out an activity which generates income, are subject to taxation in Gibraltar”.

The EC said it had assessed 165 tax rulings granted by the Gibraltar tax authorities to different companies in 2011, 2012 and up to August 2013. “Based on the information submitted by the UK authorities, it appears that the Gibraltar tax authorities grant formal tax rulings without performing an adequate evaluation of whether the companies' income has been accrued in or derived from outside Gibraltar and therefore is exempted from taxation in Gibraltar.”

The Gibraltar government said: “The decision of the outgoing Spanish EU competition commissioner Almunia … is wrong. The decision appears to be based on what are clearly basic errors of fact which have either carelessly or otherwise been overlooked.”

It will “very vigorously” contest the Commission’s “mistaken and unfair impression”, it added.

Replies (8)

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By RFL H
03rd Oct 2014 08:36

Transfer Pricing is a joke for UK tax payers

Apple will not give up the UK market.

We should legislate that they (and the others who are at it) declare the % of sales to UK customers and their worldwide profits and get them to pay CT on that at the UK rate if this is lower than the (joke) number they put on their current tax return.

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By AndyC123
06th Oct 2014 12:20

It's not that simple

"We should legislate that they (and the others who are at it) declare the % of sales to UK customers and their worldwide profits and get them to pay CT on that at the UK rate "

 

Do you also think that UK companies that export abroad should pay taxes in the countries they export to? So a UK company exporting to (say) 20 different countries would need to understand 20 differrernt tax regimes, file tax returns in 20 different countries and hire accountants in each country? And if they got a new order from a new country would have to incur huge add-on costs to fufill the compliance requirements for that new country to fill one order so probably wouldn't bother?

So we might lose as much tax on exports as we gain on imports

Or maybe you think that the UK should have full taxing rights on all of any UK based companies' profits no matter where in the world they are selling to AND be able to tax non-UK companies on their UK sales?

You don't think that might not be acceptable to other countries?

It seems to be that every call for changes to international tax seems to work on the basis that the UK will only benefit and that all other countries will cheerfully give up their taxing rights to the UK. 

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By robertgarrod
06th Oct 2014 12:21

IRISH TRANSFER PRICING

There should be equivalent privileges for the Northern Irish Government.

Perhaps the UK  is frightened of being accused of discrimination but the Eire government is not.

 

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By brownbuchanan
06th Oct 2014 12:51

The law of unintended consequences
Everybody in this argument States that they are abiding by the law and perhaps they are.
But as we all know it dosnt pass the smell test which is a prime test that should be used when looking at financial transactions,tesco take note!
Who knows what will happen when Scotland get devolved tax powers
We may get
A big dram,Cabre toss and a whiskey with double Dutch
Watch out hmrc

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By blueskies
06th Oct 2014 12:59

should be .....

should be substance over form?

 

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Replying to SteveHa:
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By brownbuchanan
06th Oct 2014 13:13

Is that not the smell test?

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By johnjenkins
06th Oct 2014 13:44

Until the world

economic gurus decide how to treat multinationals then we are always going to have problems. So the easy way is to have a licence to trade. Cost based on sales for the previous year.

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By AndrewV12
08th Oct 2014 09:29

This will run and run......

“As this is an ongoing legal process, Ireland will not be commenting further on any individual aspects of this case.”

I estimate In two years time this subject will surface again, by then I may have thought up a constructive comment / opinion.   I am unsure if the Irish Government will have by then.

 

Thats the trouble with the EU, all the members want to cherry pick which rules apply to them. and which ones they can side step.

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