Commission puts Apple’s tax affairs in spotlight

Apple warned the Irish authorities that its presence in Ireland was subject to review before specifying the maximum amount of tax it was prepared to pay, according to documents published as part of a European Commission probe.

The European Commission today (30 September) published evidence underpinning its allegation that the Irish government broke European Union law by cutting Apple a sweetheart tax deal worth billions of euros to ensure that it kept its European headquarters in Ireland.

The documents portray Apple as hinting to the Irish authorities that it would leave the country unless it could cut a tax deal, before spelling out how much tax it was prepared to pay.

The Commission on 11 July decided to open an in-depth investigation, which is still on-going, into tax rulings issued by the Irish government to Apple. That decision is published for the first time today.

It cites from internal government memos and notes that describe a meeting with Apple in 1991 where a representative “mentioned by way of background information that Apple was now the largest employer in the Cork area [in Ireland] with 1,000 direct employees and 500 persons engaged on a sub-contract”. Apple’s representative added that the company was reviewing its international presence and, in light of that, suggested capping the company’s taxable profits in Ireland.

These should not exceed $30-40 million, although tellingly the representative admitted that there was “no scientific basis for the figure”, in the words of the Irish government’s internal note, cited by the Commission.

The tax ruling struck between the Irish government and Apple in 1991 lasted for 15 years. The Commission observes that this is an “unusually long lasting tax ruling”, which in most other EU countries would last between 3-5 years. The length of the ruling seems all the more excessive in light of the exponential growth of Apple’s sales and profits in the last decade.

Ireland revised its tax deal with Apple in 2007, ensuring that taxes would be based on a percentage of Apple’s operating costs and profits on intellectual property.

The Commission concludes that both rulings breach EU state-aid rules requiring tax systems to be objective and consistent. Offering Ireland the opportunity to reply to the findings, the Commission also requests extensive information about Apple’s activities in Ireland, including the accounts of Apple’s Irish subsidiaries and its employment data.

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