The government has accused the European Commission of overstepping the mark in attempting to rewrite Ireland’s corporation tax rules as part of its investigation into Apple’s Irish operations.
The Department of Finance made the accusation as part of a scathing set of legal arguments, published this morning, which underline its rejection of the commission’s decision that the Revenue Commissioners afforded Apple preferential tax treatment.
It also claimed that the commission interfered with national tax strategy, failed to act impartially, contradicted itself and mistakenly applied tax law in making its decision.
The state’s arguments follow a ruling by the commission in August that Ireland had granted Apple undue tax benefits and ordered the tech giant to pay the country €13 billion.
The commission’s inquiry found that Ireland’s treatment of Apple allowed the company to avoid taxation on almost all profits generated by sales in the entire European single market.
Advertisement
It said that this was because Apple recorded all of its sales in Ireland rather than in the countries in which the products were sold.
The commission asserted that two tax opinions given to Apple by the Revenue Commissioners in 1991 and 2007 renounced tax revenue that Ireland was entitled to.
The commission is expected to publish further details of its ruling today.
Michael Noonan, the finance minister, and Enda Kenny, the taoiseach, have repeatedly outlined their rejection of the commission’s opinion.
Ireland has argued that the important decisions within the Irish branch offices were made in the US so profits deriving from those decisions could not be attributed to Ireland.
Advertisement
Last month the government filed an appeal asking the European General Court to annul the commission’s decision.
The court, which hears cases taken against European institutions, is not expected to rule on the government’s appeal for up to four years.
Luca Maestri, Apple’s chief financial officer, again rejected the commission’s decision yesterday.
“The way companies get taxed around the world is in line with the value that they create from the economic activity that they perform in certain countries,” Mr Maestri told The Times. “We do not design or develop products in Ireland . . . The engineering organisation is right here and that’s what creates our intellectual property.”
The state’s legal arguments, published today, take the commission to task for allegedly impinging on Ireland’s sovereignty in the area of direct taxation and for breaching its duty of care to member states by failing to act impartially in its investigations.
Advertisement
The state said that the commission had attempted to “rewrite the Irish corporation tax rules” by claiming that the Revenue Commissioners should have applied the commission’s version of the so-called arm’s length principle despite it not being part of either EU or Irish law.
The arm’s length principle is a guideline developed by the OECD to tackle transfer pricing.
Companies use so-called transfer pricing, which refers to the price that one unit of a company pays another for goods and services to reduce their tax bill.
Under the arm’s length principle, goods and services should be priced as they would be on the open market to ensure that there is a fair price and that all relevant tax is paid.
In Apple’s case the issue of the arm’s length principle arises in relation to Irish-registered Apple Sales International (ASI) and Apple Operations Europe (AOE) — two separate units of the multinational’s operations.
Advertisement
Even if the principle was legally relevant to the Apple case the government has claimed that the commission wrongly concluded that the tax treatment of ASI and AOE was not consistent with the rule.
Bruce Sewell, the company’s general counsel, said that ASI was effectively a global “clearing house or holding station” for cash from Apple’s sales outside the Americas. The money would be brought into the US when the corporate tax rate had been cut from the present 35 per cent rate to a “fairer” level.
“If I were a shareholder and Apple said it’s going to pay 35 per cent tax on something that it might be able to pay 20 per cent on, as a shareholder I would say, ‘well, wait a minute, that’s my money, that’s not your money Apple’,” he said.
He added that the case could rumble on for five to seven years.
The government has also claimed that the commission “exceeded its powers and interfered in tax sovereignty”.
Advertisement
It said the commission “never clearly explained” its theory that Ireland granted Apple state aid.
“The commission has manifestly breached its duty to provide a clear and unequivocal statement of reasons in its decision, relying instead on grossly divergent factual scenarios, in contradicting itself as to the source of the rule that Ireland is said to have breached, and in suggesting that Ireland granted aid in relation to profits taxable in other jurisdictions,” the government’s legal argument reads.
It added that the commission’s decision contains findings on which Ireland never had the chance to comment and that the commission breached its duty of good administration by failing to act impartially and in accordance with its duty of care.
The government also argues that the commission relied on OECD documents from 2010 in arriving at its decision but questioned how Revenue could be expected to take account of these in 1991 or 2007.
Pearse Doherty, the Sinn Fein finance spokesman, described the government’s legal arguments as “extremely weak” and claimed they were merely a repeat of what it has said since the investigation led by Margrethe Vestager, the European competition commissioner, culminated.
“There is nothing surprising about the government’s argument; it is the same well-rehearsed position it has been taking since we first heard of Vestager’s report,” he said.
“With all of its legal firepower does the government really believe that the commission has not thoroughly checked the legality and accuracy of its report? Does the government really believe that they will win this?
“Arguing this case is not only morally bankrupt, it is a huge waste of taxpayers’ money and it is only being done to provide a further smokescreen for Apple.”
The commission’s investigation into Apple’s tax affairs is one of several similar inquiries into alleged tax avoidance by US multinationals operating in the EU that it launched in recent years. The commission has also investigated Amazon, Fiat and Starbucks.