On Tuesday after the announcement of the landmark ruling by the European Commission that Ireland provided illegal state aid to Apple Inc. in the form of special tax deals, and which required Ireland to collect back taxes from the company, amounting to €13bn ($14.5bn), Michael Noonan, finance minister, like many litigants in a losing case, came out fighting and said the Irish Cabinet would be asked today to approve an appeal to the Court of Justice of the European Union.


The 130-page European Commission ruling has not yet been published.

The European Commission competence on state aid also covers the area of direct business taxation and this has been the case for decades:

While the member states enjoy fiscal autonomy in the design of their direct taxation systems, any fiscal measure a Member State adopts must comply with the EU State aid rules, which bind the member states and enjoy primacy over their domestic legislation. As early as 1974, the Court of Justice of the European Union clarified that the Commission's competence in the field of State aid control also covers the area of direct business taxation. As a rule, fiscal measures of a general nature that apply to all undertakings without distinction fall within the remit of the member states’ fiscal autonomy and cannot constitute State aid, since they do not selectively advantage certain undertakings over others. By contrast, fiscal measures that discriminate between taxpayers in a similar factual and legal situation constitute, in principle, State aid.

The use of Irish shell companies, which have cash balances of about $216bn (the cash is in the US not Ireland) that have no real world existence and since 1980 had no tax residencies anywhere, will be of interest to the European judges.

Commissioner Margrethe Vestager, in charge of competition policy, said last year:

I certainly hope and expect that member states and companies have got the message that artificial structures and transfer prices, as used in the Starbucks and Fiat cases, are illegal under state aid rules and will be followed up...In most cases, we see a combination of transfer pricing arrangements where companies try to shift profits from high-tax jurisdictions to low-tax jurisdictions via complex artificial structures.

Minister Noonan said in a statement Tuesday:

Ireland’s position remains that the full amount of tax was paid in this case and no State aid was provided. Ireland did not give favourable tax treatment to Apple. Ireland does not do deals with taxpayers.

Tim Cook, Apple CEO, in a letter to the Apple community in Europe said:

The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals.

Noonan's claim that Ireland never does deals with taxpayers that would not be commonly available, is not credible while the word "special" as used by Tim Cook can be unique or limited and the latter is what is relevant in this case.

Steve Jobs, apple, Ireland , 1980Gene Fitzgerald, minister of labour, is in centre of pic, at Apple's new facility in Cork>>>>>>>

The European Commission did not look at the arrangement where if a person buys an iPhone throughout Europe, the Middle East, Africa and India, contractually it is purchased from Apple Sales International in Cork. It means that all profits coming from those sales are recorded in Ireland.

Commissioner Vestager said in Brussels on Tuesday:

Our state aid investigation focused on the allocation of the profits recorded in Ireland within Apple Sales International. We looked into two tax rulings issued by Ireland to Apple. The first in 1991, which was replaced in 2007 by a similar second ruling. Both rulings endorsed an internal split of Apple Sales International's profits for tax purposes – they allocated the profits between its Irish branch and the company's head office. It is a "so-called" head office (Apple Sales International is an offshore Irish shell company with an address in Cork) because it exists only on paper: it has no employees, no premises and no real activities.
The Irish branch was subject to the normal Irish corporation tax. However, the head office was neither subject to tax in Ireland nor anywhere else. This was possible under the Irish tax law, which until 2013 allowed for so called 'stateless companies'.  As a result of the allocation method endorsed in the tax rulings only a fraction of Apple Sales International's profits were attributed to its Irish branch. The remaining, vast majority of profits was attributed to its "head office"
Let me illustrate this for one tax year: In 2011, Apple Sales International made profits of 16 billion euros. Less than €50m were allocated to the Irish branch. All the rest was allocated to the "head office", where they remained untaxed. This means that Apple's effective tax rate in 2011 was 0.05%. To put that in perspective, it means that for every million euros in profit, it paid just 500 euros in tax.
This effective tax rate dropped further to as little as 0.005% in 2014, which means less than €50 in tax for every million euro in profit.
Our decision concludes that splitting the profits did not have any factual or economic justification. As mentioned, the "head office" had no employees, no premises and no real activities. Only the Irish branch of Apple Sales International had any resources and facilities to sell Apple products.

Apple, Cork, tax EU

The New York Times says in an editorial that Apple and the United States have only themselves to blame for the situation:

The European ruling, however, could sharply alter the terms of the congressional debate. Republicans and Democrats alike have always assumed that foreign-held profits would one day be repatriated. The big question was the rate at which they would ultimately be taxed. Similarly, the Treasury assumes that deferred foreign profits will one day be taxed when it projects future revenues — an important measure of the nation’s fiscal health.
But the money won’t be repatriated and taxed under American law if Europeans, in the course of enforcing their own laws against tax havens, get their hands on it first. And that, in a nutshell, is why members of Congress and Treasury officials are so upset about the Apple ruling. They understand, correctly, that tax-law enforcement in Europe could reduce the sums they expect to collect taxes on someday. What they don’t understand, or aren’t saying, is that they brought the problem on themselves.