After many months of speculation, the judgement in the Apple State Aid case has finally arrived, with the EU Commission finding against Ireland. The tax to be collected is estimated at circa €13bn, excluding interest (which could be a further €6bn depending on split of assessable profits).
In working out how much tax is owed, the Commission examined the allocation of profits between the company’s “head office” and its “Irish branch”. What is interesting is that Ireland had limited “transfer pricing” legislation in place in the years relevant to the State Aid case. While State Aid rules apply across the EU, countries retain their sovereign right in terms of setting domestic tax legislation. Thus the amount of tax payable should be calculated under equivalent Irish tax measures that existed at that time. The Commission’s conclusions in this regard will be examined closely.
Given the nature of the Commission’s ruling, it is difficult to see Ireland having any option other than to defend its position. To do otherwise would result in Ireland bearing the brunt of negative coverage for a period of time, significantly impacting on our reputation.
Post-Brexit we are at a critical juncture in terms of attracting FDI; we will undoubtedly want to defend our reputation. Thus the outcome will very likely be an appeal to the ECJ. In the meantime it appears we will be obliged to collect a significant amount of tax from Apple, with the suggestion that the money is managed by NAMA in an escrow account.
An interesting side will be the reaction in the US. Already there is disquiet in the US at yet another perceived EU attack on US corporations. Any tax paid by Apple would likely ultimately reduce US tax receipts as the tax paid in Ireland could be offset against the US tax bill upon any ultimate repatriation to the US. Even in the absence of repatriation, it represents an additional cost for a US headquartered company. The sheer scale of the tax assessed today is only going to pour further fuel on this fire.
In summary, while today’s judgement is very disappointing for Ireland, by appealing the decision to the ECJ we should manage to avoid significant damage to our reputation. While assessing the likelihood of success at ECJ level is difficult, there would appear to be a strong case supporting an appeal. In the meantime, while the tax to be collected is hugely significant, this is unlikely to be made available for public expenditure purposes pending the appeal result.