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Here's what we know about the EU's claim that Ireland gave illegal State aid to Apple

They say that Apple was given an advantage over competitors.

THE EUROPEAN COMMISSION has said that it believes Ireland provided illegal state aid to Apple for almost 20 years.

The preliminary finding from the Commission’s competition regulators was flagged yesterday but details of their investigation have now been made public.

The findings were sent to the Irish Government in June and requested a number of details about Apple’s practices in Ireland. The letter gave Irish authorities a month to respond, this is what it said.

Apple Apple has had a presence in Ireland since the 1980s. AP / Press Association Images AP / Press Association Images / Press Association Images

The EU thinks Ireland and Apple have a case to answer

The investigators are clear that they feel Apple’s dealings in Ireland may have broken competition rules and need to be looked at.

The letter signed by the commission’s competition chief Joaquín Almunia says that it is their preliminary view that a ‘tax ruling from 1991 to 2007 in favour of the Apple group constitutes State aid’.

The letter further states that Apple gained a competitive advantage from this:

“Accordingly, the Commission is of the opinion that through those rulings the Irish authorities confer an advantage on Apple. That advantage is obtained every year and on-going,” the letter says.

The EU wants answers from Ireland. But what is it asking for?

  • Apple’s financial accounts in Ireland for the years 2004 to 2013, “in particular the profit and loss accounts”.
  • Details of income these companies receive from activity they are not directly involved in, specifically if this incomes comes from Ireland.
  • Information on cost sharing agreements between the parent company Apple Inc. and its Irish subsidiaries.
  • The type of intellectual property covered by cost sharing agreements. 

Apple has seven companies incorporated in Ireland

The 21-page letter outlines Apple’s organisation and explains that Apple is made up of eight different companies, seven of which are incorporated in Ireland with the parent, Apple Inc., incorporated in the US.

The EU says that three of these seven are not considered to be ‘tax resident’ in Ireland.

PastedImage-87224 European Commission European Commission

The commission notes that Apple had net sales last year of $171 billion and income of $37 billion. In 2012 and 2011, net sales amounted to $156 billion and $108 billion respectively.

According to information supplied by the Irish authorities to the EU in March, Irish incorporated companies Apple Operations Europe and Apple Sales International combined to have a turnover of up to €520 million in 2012.

The EU’s says taxable profit from the above figures ranged from €50 million to €70 million with total tax payable at somewhere be between €2 million and €20 million.

The EU investigation will focus on Apple’s transfer pricing in Ireland, not taxation

Much of the commission’s letter focused on its interpretation of transfer pricing rules and suggests that they will look at whether they were adhered to in this case.

The commision explain’s the principle of moving profits around within a multinational group as follows:

Multinational corporations pay taxes in jurisdictions which have different tax rates. The after tax profit recorded at the corporate group level is the sum of the after-tax profits in each county in which it is subject to taxation. Therefore, rather than maximise the profit declared in each country, multinational corporations have a financial incentive when allocating profit to the different companies of the corporate group to allocate as much profit as possible to low tax jurisdictions and as little profit as possible to high tax jurisdictions. This could, for example, be achieved by exaggerating the price of goods sold by a subsidiary established in a low tax jurisdiction to a subsidiary established in a high tax jurisdiction.

Belgium EU Bank Cartel European Competition Commissioner Joaquin Almunia. AP / Press Association Images AP / Press Association Images / Press Association Images

Any financial liability will be paid by Apple

Towards the end the Commission’s letter to Irish authorities, Almunia points out that the burden of repaying any unlawful aid would fall on Apple:

The Commission wishes to remind Ireland… and would draw your attention to Article 14 of Council Regulation (EC) No 659/199935, which provides that all unlawful aid may be recovered from the recipient.

Ireland yesterday strenuously denied that Apple received “selective treatment” on its tax affairs here while British Prime Minister David Cameron came out last night to criticise loopholes in Ireland

The investigation and final decision is expected on the Ireland/Apple case is expected to take a considerable period of time.

Read the Commission’s letter to Ireland in full >

Read: Ireland is Apple’s ‘Holy Grail of tax avoidance’ >

Read: ‘Double Irish’ tax loophole in the firing line >

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