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Apple may have to repay millions from Irish government tax deal Apple may have to repay millions from Irish government tax deal
(about 2 hours later)
Apple may have to repay the tens of millions of euros that it received as “illegal state aid” through a sweetheart tax deal with the Irish government between 1991 and 2007. Apple may have to repay tax on billions of euros of revenues after the European commission (EC) criticised “illegal state aid” received through sweetheart tax deals made with the Irish government in 1991 and 2007.
The European commission (EC) on Tuesday formally opened an investigation into the deals, with the outgoing competition commissioner, Joaquín Almunia, warning that the recipient of any state aid would be liable to repay it. The ​ (EC) on Tuesday formally opened an investigation into the deals, with the outgoing competition commissioner, Joaquín Almunia, warning that the recipient of any illegal state aid - in this case Apple - would be liable to repay it.
The investigation comes as European governments become increasingly critical of tax arrangements used by giant US technology companies to shift revenues to low-tax countries. Apple, Google, Amazon and Facebook have all come under scrutiny for the methods they use to lower the tax they pay on their non-US revenues, especially for transactions in the EU. The maximum amount payable could amount to €800m, said Seamus Coffey, an economics lecturer at University College Cork, who has examined Apple’s tax affairs there. “The EC can demand back payments for ten years, which would take it back to 2004.” Figures in the EC’s calculation show that the relevant Apple subsidiaries had profits of between €60m and €80m between 2009 and 2012, and revenues of between €500m and €680m. “You’re taxed on profits, not revenues, but even if the EC said that all that revenue was pure profit, then over 10 years it would be the Irish tax rate of 12.5% on about €6.8bn - that’s about €850m,” said Coffey. “But it won’t be anything like that.” A more likely figure would be 12.5% on total profits over the ten years of perhaps €800m, amounting to €100m, he said.
The investigation, which could take up to 18 months to conclude, comes as European governments become increasingly critical of tax arrangements used by giant US technology companies to shift revenues to low-tax countries. Apple, Google, Amazon and Facebook have all come under scrutiny for the methods they use to lower the tax they pay on their non-US revenues, especially for transactions in the EU.
Almunia said that the EC’s preliminary investigation suggests that deals made between Apple and the Irish government in 1991 and 2007 “constitute state aid” but that “the commission has doubts about the compatibility of such State aid with the internal market [in the EU]”. He said that a deal which replaced it in 2007 also breaks the rules.Almunia said that the EC’s preliminary investigation suggests that deals made between Apple and the Irish government in 1991 and 2007 “constitute state aid” but that “the commission has doubts about the compatibility of such State aid with the internal market [in the EU]”. He said that a deal which replaced it in 2007 also breaks the rules.
State aid is illegal in the EU if it interferes with the free internal market. Ryanair was told to repay nearly €10m in illegal state aid that it received from three airports, because it gained “an undue economic advantage over competitors” through arrangements that it made with them. Ryanair is contesting the order.State aid is illegal in the EU if it interferes with the free internal market. Ryanair was told to repay nearly €10m in illegal state aid that it received from three airports, because it gained “an undue economic advantage over competitors” through arrangements that it made with them. Ryanair is contesting the order.
Apple’s international headquarters are based in Knocknaheeny, a run-down northern suburb of Cork where its is now the second biggest employer. Apple says that it pays all taxes due. Commission experts say it paid just 3.7% tax on non-US profits of $31bn last year.Apple’s international headquarters are based in Knocknaheeny, a run-down northern suburb of Cork where its is now the second biggest employer. Apple says that it pays all taxes due. Commission experts say it paid just 3.7% tax on non-US profits of $31bn last year.
The Irish government has rejected suggestions of a special deal with Apple, which has been operating in the country since the 1980s when the company’s co-founder Steve Jobs arranged for a portion of the economic rights to exploit the group’s intellectual property – developed in California – to be transferred from an American company to a new “Irish Apple” company.The Irish government has rejected suggestions of a special deal with Apple, which has been operating in the country since the 1980s when the company’s co-founder Steve Jobs arranged for a portion of the economic rights to exploit the group’s intellectual property – developed in California – to be transferred from an American company to a new “Irish Apple” company.
Two-thirds of Apple’s global profits for 2011 were attributed to companies registered in Cork.Two-thirds of Apple’s global profits for 2011 were attributed to companies registered in Cork.
However, Seamus Coffey, an economics lecturer at University College Cork, who has independently examined the documents relating to the deal, said that the amount repayable would be comparatively small compared to Apple’s gigantic revenues. However Coffey said that the amount repayable would be comparatively small compared to Apple’s gigantic revenues.
“We aren’t talking about billions of euros. It would be in the low millions,” Coffey told the Guardian. “It would be a relatively small amount for Apple.” The investigation, which began informally last year, is looking at deals first made by the Irish government with Apple when it was a comparatively young company, and from the same year that it launched its iPhone.
The investigation, which began informally last year, is looking at deals made by the Irish government with Apple when it was a comparatively young company, and from the same year that it launched its iPhone.
Apple has come under fire in the US for its complex tax arrangements, under which a company called Apple Sales International, which until 2012 had no employees and was controlled by a US-based board, yet is based in Ireland - where in 2011 it paid taxes of $10m on revenues of $22bn from non US-based Apple activities - a rate equivalent to 0.045%.Apple has come under fire in the US for its complex tax arrangements, under which a company called Apple Sales International, which until 2012 had no employees and was controlled by a US-based board, yet is based in Ireland - where in 2011 it paid taxes of $10m on revenues of $22bn from non US-based Apple activities - a rate equivalent to 0.045%.
Warwick Business School professor of accounting Crawford Spence, who is researching tax avoidance, said: “What we are seeing with the actions of the European commission is possibly evidence that the legal boundaries around tax planning are shifting too. Recent years have seen the moral boundaries shift over both corporate and personal tax planning. Companies like Google and Amazon have been lambasted for developing tax arrangements which are entirely legal.”Warwick Business School professor of accounting Crawford Spence, who is researching tax avoidance, said: “What we are seeing with the actions of the European commission is possibly evidence that the legal boundaries around tax planning are shifting too. Recent years have seen the moral boundaries shift over both corporate and personal tax planning. Companies like Google and Amazon have been lambasted for developing tax arrangements which are entirely legal.”
Over 40 multinationals – including Amazon, Google and software security group McAfee – have operations in and around Cork, bringing 100,000 jobs to the area, according to Conor Healy, chief executive of the Cork chamber of commerce.Over 40 multinationals – including Amazon, Google and software security group McAfee – have operations in and around Cork, bringing 100,000 jobs to the area, according to Conor Healy, chief executive of the Cork chamber of commerce.
The Irish finance ministry said in a statement that it is “confident that there is no breach of state aid rules in this case”. It added that “the commission has not formally decided that there is state aid, only that it is formally examining this case”.The Irish finance ministry said in a statement that it is “confident that there is no breach of state aid rules in this case”. It added that “the commission has not formally decided that there is state aid, only that it is formally examining this case”.
Coffey said that the 1991 deal would constitute illegal state aid if it were made only to Apple, and wasn’t applied equally to any company or industry. “There are some pretty damning quotes from the minutes of meetings in 1990 [when the deal was being negotiated],” he noted.Coffey said that the 1991 deal would constitute illegal state aid if it were made only to Apple, and wasn’t applied equally to any company or industry. “There are some pretty damning quotes from the minutes of meetings in 1990 [when the deal was being negotiated],” he noted.
The EC’s key concerns about the 2007 deal seemed to be that Apple had declared too little profit in Ireland, Coffey said. “But if it was declaring too little in Ireland, then it must have been declaring too much somewhere else. The perception is that it funnels its revenues through Ireland, but that’s not true – it funnels them through the US. It’s a US company.”The EC’s key concerns about the 2007 deal seemed to be that Apple had declared too little profit in Ireland, Coffey said. “But if it was declaring too little in Ireland, then it must have been declaring too much somewhere else. The perception is that it funnels its revenues through Ireland, but that’s not true – it funnels them through the US. It’s a US company.”
In a statement, an Apple spokesman said: “Our success in Europe and around the world is the result of hard work and innovation by our employees, not any special arrangements with the government. Apple has received no selective treatment from Irish officials over the years. We’re subject to the same tax laws as the countless other companies who do business in Ireland.”In a statement, an Apple spokesman said: “Our success in Europe and around the world is the result of hard work and innovation by our employees, not any special arrangements with the government. Apple has received no selective treatment from Irish officials over the years. We’re subject to the same tax laws as the countless other companies who do business in Ireland.”
The spokesman said that since the iPhone’s launch in 2007, Apple’s tax payments in Ireland and around the world have increased tenfold.The spokesman said that since the iPhone’s launch in 2007, Apple’s tax payments in Ireland and around the world have increased tenfold.