I've already explained I think Apple and Ireland have little way out of the allegations levied by the EU. But, how much is Apple on the line for?
Heather Self has said in the Wall Street Journal that she thinks it may be €200 million. I think that's ball park fair.
BUT, (and I don't use capital letters in that way often) there is another option here which could mean that Apple are exposed to considerably more liability.
My logic is that the companies that are being looked at are Irish incorporated companies that are not resident in Ireland. Therefore, the estimate of additional tax Heather Self has, I think, made is is based solely on those taxes on profits arising within their Irish operations. That is because although these companies were Irish incorporated they effectively only ran permanent establishments in Ireland which gave rise to profits in a branch in that country which were then, supposedly, subject to tax, although as the EU has shown, that may not have been appropriately charged. I have no doubt Apple would argue that the rest of the profits were elsewhere i.e. not in Ireland and so not taxable there under its territorial taxation rules.
Now, I cannot see how the European Commission could overturn Ireland's right to have territorial tax system when a number of countries within the EU have such an arrangement, so there is little prospect of that being challenged. There is, however, another potential challenge. The fact is that whilst these companies claim to be not resident in Ireland it seems that for all practical purposes all their staff and all their activity was really undertaken in that country. What is more, Apple told a US investigation these companies were not in fact resident nowhere. In that case the obvious question to ask is how did the Irish tax authorities decide what part of the total income was attributable to Ireland when there was in fact no basis for attributing any of the income to another place, when the company was nowhere else? If it had been somewhere else then of course income could be attributed to that other place but when it was nowhere else how could any profit be allocated to somewhere which, by definition, was non-existent?
So, the question then arises as to whether Ireland in fact provided a second element of state aid by turning a blind eye to this fact that the companies in question were in fact, for all practical purposes, stateless except with regard to that part of profit that they negotiated might be attributable to the operations within Ireland.
I put this forward as conjecture, but if I was working for the Commission I would most certainly be interested in trying out this line of argument in the amount of charge to be imposed because at that point the scenario of penalty due changes completely.
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That’s the argument which is the reverse of the Commissions.
If the company is subject to tax under TCA s25 as a non resident operating a branch then on what basis are any of the profits escaping the Irish tax net given Ireland has no transfer pricing.
Ireland does not need TP rules to offer advantage
It just has to offer favourable deals to some, that’s all
Prove it did not will be the Commission response to that
My point is that Ireland needs to be failing to apply her laws rather than failing to apply international norms for it to be subject to State Aid. Otherwise it would fall out of the State Aid rules as being in the general scheme of the tax system. The lack of formal transfer pricing applied to all businesses in Ireland prior to 2010 and thus it formed part of the general scheme of our tax system.
But with or without formal transfer pricing Ireland is failing to apply her own laws in s25 which is why there is an aid, those profits are taxable in Ireland under s25 and there is no treaty protection (e.g. Article 7 of the OECD model) to justify those profits escaping the Irish tax net.
That’s where the selective advantage is. It’s not in the failure to apply international law to a taxpayer which the Irish Revenue just cannot do, it’s in the failure to apply Irish law to the taxpayer which is what has happened here.
The Commission is making the wrong argument and could lose as their starting position is “what amount of profits under international norms should come into the Irish tax net?” when their starting position should be “what amount of profits based on Irish domestic law should have escaped the Irish tax net in a non-treaty protected branch?” which they could not fail to win.
I now agree that the Commission may have got the wrong argument
Ireland must not be offering favouritism
And Apple got a special deal
Nothing in Irish tax law says tax can be paid by negotiation
I hope they have time to change tack
Being brutally honest the issue is Revenue staffing. Almost every Irish tax adviser writing in to Revenue has a copy of the decision in Matrix Securities handy figuring out how to disclose everything necessary to rely on Matrix while assuming that Revenue won’t join the dots.
It’s a very different market to the UK principally because of the level of deference Revenue showed the big firms because of their lack of training. Ireland was a second world country in 1991 and Revenue would not have had a clue as to transfer pricing.
It’s changing, slowly, they are bringing in external hires. But they can’t force their staff to attend training, can’t sack them for incompetence and the profession take advantage of that and run rings around them.
Interesting observation
I can’t comment, because I do not know in this case
I could say that some I have met from the Irish Revenue have been very good, but that does not prove you are wrong
If you have the time you should read this case
http://www.bailii.org/ie/cases/IEHC/2007/H466.html
Not for the tax which is boring (the Irish High Court followed Fallon v Fellows) but for the involvement of two of the big 6, the level of arguments (res judicata?), the fact that the inspector (one assumes at district level) blessed a transaction which should never have been blessed, and the now retired Séamus Carey in Stamps branch stood his ground looking for his stamp duty.
There are without doubt some brilliant people in Revenue of which Séamus was undoubtedly one. I don’t know who handled this case either. But as a general commentary on the market I stand over it. It is a world away from dealing with HMRC.
S.23A allowed for non resident, Irish incorp co that was not centrally managed and controlled in Ireland and was a “relevant company”. Until last years amendments, stateless companies could fall under the definition (ie you tested if Ireland had central mgt and control but if not, did not have to find where mgt and control resided). Isn’t it then still a risk and function test of the Iridh branch and the allocation of profits to it (back towards H Self levels of tax I suspect if state aid successful).
No domestic TP rules at the time and EU only examining 1991 in 2014 is likely to count for something by the time this hits ECJ.
This is v political. Looking to force Ireland to amend res rules and shut down the double in this months budget.