It was headline news that the European Competition Commissioner announced that the Irish government were required to collect €13bn from Apple. The Commission had concluded that the Irish government had made illegal state aid available to the US-headed multinational for over a decade or more, essentially by treating a large portion of the profits realised by their Irish companies as falling outside the Irish tax regime and not immediately taxable anywhere.
Direct tax and the European Union
Within the EU, direct taxes fall to the individual member states to determine, provided they are not inconsistent with the fundamental freedoms set out in the EU Treaty. It was only relatively recently that the Commission began to challenge certain tax rulings issued to major multinationals as being illegal state aid. The Commission freely admit that they are not tax experts. Rather, their position is that tax rulings that are this favourable and selective are distortive, and therefore illegal state aid.
The Apple announcement is not the first of its type, although it is so far the largest. With its anti-tax avoidance package agreed earlier this year, the EU has a clear direction of travel to be seen as tough on avoidance and these illegal state aid arguments are consistent with this. Nevertheless, the EU cannot collect one additional penny (or cent) from any taxpayer. It is for member states to do that.
Opinions in Ireland are divided. €13bn would be a huge windfall and there is some evidence of public pressure to collect this. However, the matter raises some difficult political and legislative points. Ireland wants to continue to attract foreign investment even though it has changed its law so the tax effect achieved by Apple cannot be achieved going forward.
Also, there is the question about whether, even if the principle that profits should be taxable somewhere rather than nowhere is agreed, the profits belong in Ireland. The profits arise from sales made across Europe so other territories could seek to tax them too.
What about the US?
Reaction from the US was indignant with the US Treasury accusing the Commission of overriding national authority.
The US has a particular world view when it comes to tax, with high tax rates and a tax base that includes repatriated foreign earnings. One reason why the US objects to attempts by Europe to increase tax take is that if somewhere in Europe charges more tax, the US will take less.
The answer here would be for the US to reform its tax system, although given the mechanics of their legislature it is hard to envisage this happening any time soon.
Apple’s CEO, Tim Cook, made his position quite clear when he said that Apple had not done anything wrong, and neither had the Irish government. It is for these two parties to agree the next steps in this specific case, which could include an appeal to the EU General Court, but the divide between US and EU perspectives is unlikely to be narrowed any time soon.
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