The Apple Case: An Irish Perspective

Author:Mr Jonathan Sheehan

The European Commission's decision that Ireland granted undue tax benefits of up to EUR13 billion (US$14.5 billion), plus interest, to Apple has sent shockwaves across the Atlantic and dealt a significant blow to EU/US economic relations. Ireland is caught in the middle of the cross-fire.


The decision is the conclusion of a two-year investigation by the EU Commission into the corporate tax affairs of Apple in Ireland. An EU competition law case, the decision centres on two tax rulings issued by Ireland to Apple in 1991 and 2007, which the Commission has concluded amount to illegal State Aid. The effect is that Ireland is now required by the Commission to recover unpaid taxes from Apple going back 10 years of up to EUR13 billion, plus interest. Both Apple and Ireland intend to appeal.

Under the Treaty on the Functioning of the European Union, "any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings ... shall, in so far as it affects trade between Member States, be incompatible with the internal market". The Commission has concluded that the tax rulings granted by Ireland to two Apple companies conferred a selective advantage over other businesses that are subject to the same national taxation rules. In other words, in the Commission's opinion Ireland granted Apple a 'sweetheart' deal on its Irish tax affairs.

The advance opinions issued by Ireland (Ireland does not technically issue binding tax rulings) related to the manner in which profits were internally allocated within the two Apple companies to their Irish branches. According to the Commission, the rulings endorse a profit allocation that was not in line with the "arm's length principle" and the worldwide sales profits of both companies should have been taxed in Ireland.


While Ireland taxes Irish resident companies on their worldwide profits, non-Irish resident companies are only subject to corporation tax on the income attributable to their activities in Ireland. Ireland's approach in agreeing the tax rulings was to tax Apple under the applicable Irish rules which required that the two Apple companies be taxed in Ireland on the basis of the income generated by their Irish branches only. As the remainder of the income of those companies was not generated by their Irish branches, it was not subject to tax in Ireland.

Transfer pricing rules and...

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