The Irish government has defended its tax arrangements with Apple Brussels prepares to accuse Ireland of providing illegal state aid to the iPhone maker in a clampdown on tax avoidance schemes employed by multinationals.
The European commission, which enforces EU law, will on Tuesday issue preliminary findings from an investigation into Apple’s tax affairs in Ireland. It is expected to accuse the US firm of obtaining billions of euros in illegal state aid from successive Irish governments by cutting “sweetheart” tax deals.
The EU executive is also looking into the tax arrangements of Starbucks in the Netherlands and those of Fiat’s financial arm in Luxembourg.
“The commission will publish a non-confidential version of its decision to open an investigation into tax rulings granted to Apple in Ireland that was adopted in June this year. The decision will set out the commission’s reasons for opening an in-depth investigation,” said Antoine Colombani, a commission spokesman. “We continue to investigate this case. We do not have any findings to communicate at this point.”
The Fine Gael-Labour coalition in Dublin said on Monday that it is confident no EU rules were breached in its dealings with Apple, which pays a tax rate of less than 2% in Ireland.
“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,” the department of finance in Dublin said.
Apple is a major employer in Ireland with 4,000 people working at its site in Cork, which carries out manufacturing and research and devlopment work. An additional 2,500 jobs are supported locally by Apple’s presence in the city, according to the company’s figures. Its Irish workforce is the second biggest in the EU, behind its operation in the UK which employs 5,000 workers. The Irish finance department said it will take on board the “concerns and some misunderstandings” contained in the commission’s findings.
“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,” the department of finance added.
In response to the investigation, Luca Maestri, Apple’s finance chief told the Financial Times this week: “It’s very important that people understand that there was no special deal that we cut with Ireland. We simply followed the laws in the country over the 35 years that we have been in Ireland.”
He denied Apple ever made any threat to move jobs away from Ireland to secure a tax incentive when agreeing tax rulings with the Irish authorities in 1991 and 2007.
“If the question is, ‘was there ever a quid pro quo that we were trying to strike with the Irish government’ – that was never the case,” he said. “If countries change the tax laws, we will abide by the new laws and we will pay taxes according to those laws.”
The Apple finance chief added that corporate taxes in Ireland have increased more than 10 times since the introduction of the iPhone in 2007, during which time its global sales have increased from $24bn (£14.8bn) that year to $171bn in 2013.
The EU investigation is believed to be the first time the commission has resorted to the rules on state aid to try to curb tax avoidance. The G20 has been calling for action to force the big multinationals to pay their fair share of tax where their profits are earned and the Paris-based Organisation for Economic Cooperation and Development is working on a new rulebook.
Longstanding commission attempts to “harmonise” corporate tax regimes across the EU have persistently run into fierce resistance from national governments, not least the Irish, as well as Luxembourg, the Netherlands, and Britain.
‘The double Irish’
Apple’s tax arrangements in Ireland were established under a deal that Steve Jobs, Apple’s late co-founder, struck with Dublin in the 1980s.
The deal has given Apple an effective tax rate of 2% on tens of billions of dollars in profit booked through its Irish affiliates, a US Senate report found last year.
Ireland has a low 12.5% corporation tax rate but the main source of Apple’s rock-bottom tax rate is said to be a manoeuvre called the “double Irish”.
The strategy requires a US company to attribute profits to an Irish subsidiary. A second Irish subsidiary is then set up and managed from the British Virgin Islands (BVI) or another tax haven with no corporation tax. The Irish-based company makes royalty payments to the second company and claims those payments as tax deductions in Ireland.
The Senate report did not say that Apple used the “double Irish” but it noted that Apple had a BVI-based company that owned a small share of the group’s main Irish subsidiary.
Apple’s Irish offices are based near Knocknaheeny, an impoverished northern suburb of Cork. The company told the Senate inquiry that its business there was substantive and was not based on a “sweetheart deal” that brought employment to Cork.
Apple’s chief executive, Tim Cook, told senators that the company did not rely on “tax gimmicks” and that it paid every dollar it owed
