The EU's provisional decision in the case it is making against Ireland for providing illegal state aid to Apple is here.
The basis of the decision is summarised in para 69, where it is said that:
Based on the above, 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 decision hangs entirely on whether or not OECD guidelines on transfer pricing were followed in this case, or whether instead an arbitrary allocation of profit was permitted. After some very good discussion of the OECD's principles (whether or not you agree with them) the decision reached is just about unavoidable, and is as noted above.
The question then was whether there was a loss to Ireland that represented state aid. The EU is emphatic (para 50):
As regards the measure's financing through State resources, provided it can be shown that the contested rulings resulted in a lowering of Apple's tax liability in Ireland, it can also be concluded that those rulings give rise to a loss of State resources. That is because any reduction of tax for Apple results in a loss of tax revenue that otherwise would have been available to Ireland.
How much is involved? That the ruling does not yet say. It is not yet clear if the ruling will be applied to underpayment of tax on all the activities of Apple Sales International, which makes half of all Apple's sales (or $4 billion), or just the Irish branch with sales of about €400 million, on which tax of between €1 and €10 million was paid in 2012. This obviously has massive implications for the outcome.
What is clear right now is that the EU is very confident indeed that based on 1991 documentation, published in the report, no attempt was made to follow proper transfer pricing guidelines when the extent of Apple's profits to be taxed in Ireland were decided upon and a sum acceptable to the company was instead substituted in its place. This arbitrary amount was well below anything that any transfer pricing based ruling would have allocated in the opinion of the EU and it is hard to see Apple successfully contesting that.
If this ruling has value it is for precisely that reason. What the EU is saying is that the law should be upheld and it is not for states to show favour with regard to it or for companies to demand such favour. It is saying Apple sought such favour and Ireland granted it. Now it looks like the price will be paid. For the sake of the rest of the world's businesses that is good news. Granting privileges has no place in a modern economy because it fundamentally distorts markets and rigs competition, but I am sure this is just the tip of an iceberg.
And yes, I did write this on a Mac. But would I and could I have done without this tax advantage having been given? That is the question.
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Richard, you’re assuming that Irish law is the same as UK law where Sch 28AA came in when?
Ireland only brought in the OECD TP rules in Finance Act 2010 and even then they grandfathered existing arrangements. To apply an OECD test is therefore an attempt by the EC to legislate for the people of Ireland which would be unacceptable and is not provided for in the treaties. Even the Competition Commissioner does not have those powers.
The Commission need to find a domestic Irish tax law angle on this, a pure OECD challenge seems destined to fail when Ireland did not have those rules as a matter of domestic law and thus Revenue couldn’t apply them to the detriment of a taxpayer.
The odd agreement to cap capital allowances seems ultra vires…
Interesting
Given I wrote about this in 201 I should have remembered that
But I think you’re wrong: unless you can show all companies got such a deal then Apple got a favourable deal and that’s all that matters
The problem that the Commission have is that they singled out Apple. Revenue did not apply any concept of transfer pricing to any business in Ireland prior to 2010. They had no transfer pricing people, they’ve only recently hired in from industry. So almost any taxpayer who got a ruling could have equally benefited.
Some of the stuff in the letter is just eye watering yet I think the Commission will really struggle to make this particular case. On the bright side it will encourage tax authorities and the tax profession to be more careful of the State Aid rules in future.
Unless everyone else comes froward with their deals Apple will lose this, I think
Perhaps a technicality, but this is not a “ruling” that there is impermissible state aid, but rather notification of a preliminary conclusion that there might be impermissible state aid, with a request for further comments and information.
It seems a bit odd for the Commission to be applying the 2010 OECD transfer pricing guidelines to rulings delivered in 1991 and 2007. That said, the OECD has had guidelines for multinational enterprises since, I think, 1976, and the published extracts from the meeting notes do look rather problematic for Apple.
By comparison, the UK only introduced Schedule 28AA in Finance Act 1998, as part of the introduction of corporation tax self assessment, I think. Was its predecessor s.770 ICTA used much in anger? (Back then, the tax legislation was in one thick red book, with related regulations and official guidance in a second volume; now there are eight volumes, and that is just the main direct taxes.)
The rules go back well into the 60s
The EU defence is that even if OECD standards did not apply a standard had to apply or favouritism ( = state aid) could happen and so in fact using the ‘no transfer pricing rules’ defence requires every agreement with every company to be put on the table instead to prove no one was prejudiced
That is not going to happen
Apple seems to have attracted most of the press attention, but perhaps worth pointing out that similar investigations are under way into the treatment of a Starbucks manufacturing subsidiary in the Netherlands, and a Fiat financing subsidiary in Luxembourg. http://europa.eu/rapid/press-release_IP-14-663_en.htm
Indeed