The European Commission today released its letter to the Irish Government and it outlines why it believes Apple Inc., the American electronics giant, was given special tax deals in 1991 and 2007 to reduce its tax liabilities, that departed from standard international transfer pricing rules.
The state support to Apple that may need to be recouped will cover a period of 10 years, and the amount involved "would be expected to run to billions of euros, according to people involved in the case," according to The Financial Times.
In a 21-page document [pdf], the Commission details the tax rulings that were issued by the Irish Revenue in 1991 and 2007 and says:
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 document also says:
The Commission wishes to remind Ireland that Article 108 (3) of the Treaty on the Functioning of the European Union has suspensory effect, and would draw your attention to Article 14 of Council Regulation (EC) No 659/1999 35, which provides that all unlawful aid may be recovered from the recipient."
Interested parties, including Apple, have 30 days from the notice published in the EU's official journal, to comment on the case.
Ireland's Department of Finance issued a statement on Monday saying "Ireland is confident that there is no breach of State aid rules in this case and has already issued a formal response to the Commission earlier this month, addressing in detail the concerns and some misunderstandings contained in the Opening Decision. Ireland welcomed that opportunity to clarify important issues about the applicable tax law in this case and to explain that the company concerned did not receive selective treatment and was taxed fully in accordance with the law."
"As this is an ongoing legal process, Ireland will not be commenting further on any individual aspects of this case."
Luca Maestri, Apple CFO, said on Monday: “We know that we didn’t do anything that was against the law and we are very confident that through the investigation it will be shown there was no selective treatments in our favour at any point in time.”
Excerpt of a note of a meeting between Apple's tax advisor in 1990 and an Irish Revenue official:
[The tax advisor's employee representing Apple] stated that the company would be prepared to accept a profit of $30-40m assuming that Apple Computer Ltd. will make such a profit. (The computer industry is subject to cyclical variations). Assuming that Apple makes a profit of £100m it will be accepted that $30-40m (or whatever figure is negotiated) will be attributable to the manufacturing activity. However if the company suffered a downturn and had profits of less than $30-40m then all profits would be attribitable [sic] to the manufacturing activity. The proposal essentially is that all profits subject to a ceiling of $30-40m will be attributable to the manufacturing activity.
[The representative of Irish Revenue] asked [the tax advisor's employee representing Apple] to state if was there any basis for the figure of $30-40m and he confessed that there was no scientific basis for the figure. However the figure was of such magnitude that he hoped it would be seen to be a bona-fide proposal. As it was not possible to gauge the figure in isolation [the tax advisor's employee representing Apple] undertook to extract details of the actual costs attributable to the Irish branch.”
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