Apple tax State Aid decision expected before Christmas, says Irish Finance Minister

"We are expecting an adjudication on Apple maybe in the next few weeks but certainly between now and Christmas," finance minister Michael Noonan told reporters on his way to a eurozone finance ministers' meeting yesterday, according to Reuters.

The European Commission is investigating two advance pricing arrangements (APAs) issued by Ireland in favour of Apple in 1991 and 2007. An APA is an agreement between a taxpayer and a taxing authority that amounts to be charged for goods or services supplied intra group, and usually cross-border, will not fall foul of transfer pricing legislation.

The European Commission does not have direct authority over national direct tax systems. However, under EU rules it is unlawful for any EU country to give financial help to selected companies in a way which would distort fair competition. If an APA contravenes market principles so as to confer a selective advantage, it could be considered to be state aid.

In June 2014 the European Commission announced in-depth investigations into whether tax rulings issued to Apple by Ireland, Starbucks by the Netherlands and Fiat Finance and Trade by Luxembourg amounted to "unjustifiable" state aid. In October 2014 a similar investigation was announced into Amazon in Luxembourg.

In September 2014 the European Commission published a letter setting out its preliminary findings in relation to its investigations into the rulings given to Apple. It said that the APAs agreed between the Irish tax authorities and Apple may have given the company unfair advantages incompatible with EU state aid laws. It said that tax margins appeared to have been "reverse engineered" without economic basis and tied to concerns about local jobs. It also criticised the length of the 1991 agreement which lasted 16 years, compared to arrangements in other European countries that the Commission said typically lasted for no more than five years.

If the Commission rules that member states have 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.

In April, Apple said in a filing to the US Securities and Exchange Commission: “If the European Commission were to conclude against Ireland, it could require Ireland to recover from the company past taxes covering a period of up to 10 years reflective of the disallowed state aid, and such amount could be material.” A material event is usually defined for the purposes of US Securities rules as 5 per cent of a company’s average pre-tax earnings for the past three years.

Heather Self, a tax expert at Pinsent Masons, the law firm behind Out-law.com, said: "For a US company, a decision from the Commission that a ruling constitutes state aid could be very expensive. Amounts repaid are repayments of aid and so will not automatically be considered to be 'tax' for the purposes of double tax relief. Even if they do qualify for credit, the group's overall foreign tax credit position may limit the relief available." 

In October the Commission announced that it had decided that a tax ruling issued by the Dutch authorities in 2008 gave a selective advantage to Starbucks Manufacturing, a Netherlands company, which had the effect of reducing its tax liability by €20 million to €30m. It also decided that a tax ruling issued by the Luxembourg authorities in 2012 gave a selective advantage to Fiat Finance and Trade, a Luxembourg company providing financial services to other Fiat group companies.

Heather Self said that the Starbucks case was "particularly concerning" for multinational groups. "The ruling process in the Netherlands is long-established and very well-respected internationally. For competition authorities to challenge very technical tax rulings by competent authorities in this way is extremely destabilising.”

 “It has implications not just for companies that have received tax rulings from the Netherlands in the past, but for any multinational operating anywhere in Europe. The fact that EU competition authorities feel it appropriate to intervene in highly complex international tax issues adds another layer of complexity and unpredictability.” she said.

Heather Self said: "If the Starbucks ruling, which used established transfer pricing methodologies, was found to be contrary to the State aid rules, then it is almost inevitable that the Apple case will go against Ireland. There are indications that the Apple ruling was 'reverse engineered' to give the desired tax outcome in an attempt by the Irish government to attract Apple's investment in Ireland and the resulting creation of employment."

"Arguably the Apple scenario is the kind of case that should be within the remit of the Commission, rather than situations where, because transfer pricing is not an exact art, there is no clear right or wrong answer." she said.

The Commission's decision in relation to Amazon is also expected before the end of the year.

Caroline Ramsay, a state aid expert at Pinsent Masons, said: "Once the team at the Commission has cleared its desks by issuing the Apple and Amazon decisions, we can expect it to move on to looking at other specific rulings. The Commission has been criticised by the US for its apparent focus in its investigations on US owned multinationals, so it would not be surprising if European owned groups were to feature more prominently in the future."