EU Court Just Heard the Irish Tax Case Against Apple

Apple and the Irish government have been embroiled in controversy for some time. Ireland claims that the multinational company avoided paying taxes and took billions of euros in illegal state aid to create jobs, while Apple argues it fully operated within the law.

The Details

The accusations first arose when the European Council argued that Ireland and Apple made an “artificial” arrangement for profit in 2016. This was when the European Council announced that the Irish Government had to recover approximately €13 billion from Apple, the amount of taxes that the company allegedly underpaid.

The European Commission says that Apple and Ireland came to an agreement that the company would pay 0.005 percent of its profits in taxes instead of 1 percent from 2003 to 2014.

The Arguments

The Commission argues that no member state of the EU has the authority to offer a tax benefit to a selected company. Doing so is illegal, according to the European Union’s state aid rules.

Apple, on the other hand, has consistently claimed that it paid all of the taxes that were due. The company argues that it always respects tax laws and pays large amounts in tax on profits, including $37 billion to the United States Treasury. Apple also says that it is the largest taxpayer in Ireland and the world. It also notes that it employs 6,000 workers in Ireland who all pay income tax.

The Ongoing Appeal

The tax case against Apple was brought back into the news recently as an appeal was filed in September. In the meantime, Apple has placed the supposedly owed funds in a Dublin escrow account where it now amounts to €14.3 billion due to interest.

The appeal process began in September with an oral hearing held in the middle of the month. Experts predict that the appeals process will last at least a number of months. It is very likely that following this appeal, there will be another appeal to the senior Court of Justice of the European Union.

The Main Issue

To those familiar with the case, it seems that the main issue in the tax case is not specifically the low rate of taxation that Ireland gave Apple, but how that rate compares to the typical tax rate in the country. The case argues that Ireland has artificially reduced the amount of tax liability that Apple has.

This is a major breach of the level-playing field rules associated with a single market, as it would mean that Ireland gave Apple an unfair advantage.

Additional Details

The tax appeals process will also look at more complicated issues, such as how Apple laid out its profits and attributed them to various offices. At the time, Apple had Apple Operations Europe and Apple Sales International, both of which were incorporated in Ireland. The Commission argues that these two entities and their profits did not correspond with the economic reality, which they must legally do.

That is because nearly all of the profits from the two companies came from a “head office,” according to Apple’s tax paperwork. In its assessment, the Commission indicated that this is not possible since the “head office” did not physically exist and only existed in paper. They argue that Apple did this because the profits of the “head office” did not have to deal with taxes due to the Irish tax law provisions of the time.

Experts predict that some of the proceedings will include an argument about how the Commission calculated the figure of Apple receiving €13 billion in state aid. The Commission indicated this figure is based on the fact that all owed taxes should be to the Irish government, but if other countries required the company to pay more; this would reduce the unpaid Irish taxes.

We are unlikely to get a final decision regarding the Apple tax debate in Ireland any time soon. It will probably be at least several months until a decision is reached, possibly more.

Sources:

https://www.irishtimes.com/business/economy/explainer-apple-s-13bn-tax-appeal-has-huge-implications-1.4017044

https://www.ft.com/content/43812efa-d7f4-11e9-8f9b-77216ebe1f17

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