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European Commission Report Warns Ireland Over Tax Treatment of Apple European Commission Report Warns Ireland Over Tax Treatment of Apple
(about 1 hour later)
BRUSSELS — The European Commission on Tuesday warned Ireland that the country had granted Apple tax advantages that could amount to illegal state aid.BRUSSELS — The European Commission on Tuesday warned Ireland that the country had granted Apple tax advantages that could amount to illegal state aid.
In its preliminary finding, the commission also told Ireland that it may order its government to collect huge amounts of back taxes from the American technology giant.In its preliminary finding, the commission also told Ireland that it may order its government to collect huge amounts of back taxes from the American technology giant.
The 21-page report follows the formal start of an investigation in June and lays out the commission’s preliminary case claiming that Ireland granted Apple special deals that may have helped the company avoid significant amounts of tax and that created unfair advantages over other European Union member countries.The 21-page report follows the formal start of an investigation in June and lays out the commission’s preliminary case claiming that Ireland granted Apple special deals that may have helped the company avoid significant amounts of tax and that created unfair advantages over other European Union member countries.
The commission said it was focusing on rulings by the Irish tax authorities in 1991 and 2007 concerning two wholly owned Apple subsidiaries, Apple Operations Europe and Apple Sales International, which have branches in Ireland.The commission said it was focusing on rulings by the Irish tax authorities in 1991 and 2007 concerning two wholly owned Apple subsidiaries, Apple Operations Europe and Apple Sales International, which have branches in Ireland.
European Union law “provides that all unlawful aid may be recovered from the recipient,” Joaquín Almunia, the bloc’s departing commissioner for competition, said in the report.European Union law “provides that all unlawful aid may be recovered from the recipient,” Joaquín Almunia, the bloc’s departing commissioner for competition, said in the report.
Apple said Ireland had treated it the same way as other companies.Apple said Ireland had treated it the same way as other companies.
“Apple has received no selective treatment from Irish officials over the years,” the company said in a statement on Tuesday. “We’re subject to the same tax laws as the countless other companies who do business in Ireland.”“Apple has received no selective treatment from Irish officials over the years,” the company said in a statement on Tuesday. “We’re subject to the same tax laws as the countless other companies who do business in Ireland.”
The focus of the case against Ireland is on so-called transfer pricing — a practice that commonly involves companies moving profits and losses between subsidiaries by labeling them as internal corporate payments for goods or for copyright or patent royalties. In a separate report on Tuesday, the commission — the executive arm of the European Union — also published its preliminary findings in a tax investigation of Luxembourg, saying there was evidence of favorable treatment for Fiat Finance and Trade, a unit of the Italian automaker Fiat.
The focus of the case against Apple and Ireland is on so-called transfer pricing — a practice that commonly involves companies moving profits and losses between subsidiaries by labeling them as internal corporate payments for goods or for copyright or patent royalties.
The report includes a schematic map of the international operations of Apple and some of the findings from the United States Senate subcommittee that has been investigating corporate tax issues, including details of a 415 percent increase of sales revenues between 2009 and 2012.The report includes a schematic map of the international operations of Apple and some of the findings from the United States Senate subcommittee that has been investigating corporate tax issues, including details of a 415 percent increase of sales revenues between 2009 and 2012.
“The main question in the present case is whether the rulings confer a selective advantage upon Apple insofar as it results in a lowering of its tax liability in Ireland,” said the report, addressed to Eamon Gilmore, Ireland’s foreign minister.“The main question in the present case is whether the rulings confer a selective advantage upon Apple insofar as it results in a lowering of its tax liability in Ireland,” said the report, addressed to Eamon Gilmore, Ireland’s foreign minister.
The commission said it had found “several inconsistencies in the application of the transfer pricing method chosen when determining profit allocation” between the two Apple subsidiaries as well as costs that had been “reverse engineered so as to arrive at a taxable income.”The commission said it had found “several inconsistencies in the application of the transfer pricing method chosen when determining profit allocation” between the two Apple subsidiaries as well as costs that had been “reverse engineered so as to arrive at a taxable income.”
The commission also said it found that the pricing arrangements used by Apple in Ireland lasted much longer than those in other member states of the European Union.The commission also said it found that the pricing arrangements used by Apple in Ireland lasted much longer than those in other member states of the European Union.
“Accordingly, the commission is of the opinion that through those rulings the Irish authorities confer an advantage on Apple,” the report said. “That advantage is obtained every year and ongoing, when the annual tax liability is agreed upon by the tax authorities in view of that ruling.”“Accordingly, the commission is of the opinion that through those rulings the Irish authorities confer an advantage on Apple,” the report said. “That advantage is obtained every year and ongoing, when the annual tax liability is agreed upon by the tax authorities in view of that ruling.”
​The Irish government said that it had sent a letter to the European Commission in September replying to questions by Brussels about Ireland’s tax policy. The document, which was not publicly available on Tuesday, outlined why Ireland believes it has not broken European law, according to Brian Meenan, a spokesman for the country’s Department of Finance.​The Irish government said that it had sent a letter to the European Commission in September replying to questions by Brussels about Ireland’s tax policy. The document, which was not publicly available on Tuesday, outlined why Ireland believes it has not broken European law, according to Brian Meenan, a spokesman for the country’s Department of Finance.
“We believe we’re not in breach of any rules,” Mr. Meenan said.“We believe we’re not in breach of any rules,” Mr. Meenan said.
​ ​Ireland has set its corporate tax rate at just 12.5 percent. That is roughly one-third the tax rate of other European countries, including France, whose policy makers have criticized Ireland for offering incentives to attract global companies to its shores.
One country having lower tax rates than its neighbors is not against European Union rules. But it could be a violation if a country granted special deals to certain companies that were not available to others.
The analysis by the commission, which was sent to Ireland in June but is only now being made public, is aimed at proving that Irish authorities underestimated the taxable profit for the Irish branches of Apple Sales International and Apple Operations Europe.
The report said that one of the tax rulings by Irish authorities amounted to “a reduction of charges that should normally be borne by the entities concerned in the course of their business” and should be considered state aid.
The investigation of Luxembourg’s tax treatment of Fiat focuses on an individual ruling issued by tax authorities and, like the investigation involving Ireland, focuses on whether officials underestimated the Fiat unit‘s taxable profit.
Any finding against Ireland or Luxembourg for inducements to Apple and Fiat could be awkward for Jean-Claude Juncker, the incoming president of the European Commission.
Mr. Juncker has been accused by his opponents of helping to turn Luxembourg into a tax haven during his nearly two decades leading the nation.
Mr. Almunia, the competition commissioner, has previously singled out Luxembourg for offering “only partial” cooperation in preliminary fact-finding related to the Fiat unit.
In a report, also sent to Luxembourg in June but not published until Tuesday, the commission gave the country one month to provide details on its tax treatment of the Fiat unit and recalculate the amounts involved. Mr. Almunia recently alluded to Luxembourg’s not having reacted promptly enough, in his view.
In a statement, the Finance Ministry of Luxembourg said that the publication of the materials on Tuesday was “a mere formal step in the procedure” that “contains no new elements.”
The government has “submitted all requested information to the commission and is fully cooperating with the commission in the investigation,” the statement said, and it is “confident that the allegations of state aid in this case are unsubstantiated and that it will be able to convince the commission in due time of the legitimacy of the tax ruling concerned.”