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EU Takes Forward Irish Advance Tax Ruling Probe

by Jason Gorringe,, London

01 October 2014

In a letter published online on September 30, 2014, the European Commission has said that two advance tax rulings provided by the Irish Revenue may have conferred a selective advantage to technology giant Apple in breach of state aid rules.

Following an in-depth investigation into the rulings, the Commission has explained its "Opening Decision" in a 21-page letter to the Irish Foreign Affairs Minister Eamon Gilmore. The Commission will now proceed with the next stage in its investigation process and has asked Ireland for additional information on Apple's operations in Ireland.

The Irish Finance Department maintained: "Ireland is confident that there is no breach of state aid rules in this case and has already issued a formal response to the Commission earlier this month, addressing in detail the concerns and some misunderstandings contained in the Opening Decision. Ireland welcomed that opportunity to clarify important issues about the applicable tax law in this case and to explain that the company concerned did not receive selective treatment and was taxed fully in accordance with the law."

The ongoing investment concerns tax rulings made in 1991 and 2007 on the attribution and calculation of taxable profits to the Irish branches of Apple Operations Europe (AOE) and Apple Sales International (ASI). In March 2014, the Commission informed Ireland that it was investigating whether the tax rulings constituted "new aid." The Commission is also investigating tax rulings agreed in other member states with two other multinationals.

Article 107(1) of the Treaty on the Functioning of the European Union (TFEU) stipulates that any aid granted by an EU member state or through state resources that distorts or threatens to distort competition by favoring certain undertakings or the provision of certain goods shall be deemed incompatible with the common market.

For a measure to constitute state aid under the provisions of Article 107(1), it must meet all of the following conditions: it must be imputable to the state and financed through State resources; it must confer an advantage on its recipient; that advantage must be selective; and the measure must distort or threaten to distort competition and have the potential to affect trade between member states.

According to the Commission's letter, there is "no indication that the contested measure can be considered compatible with the internal market," as it "appears to constitute a reduction of charges that should normally be borne by the entities concerned in the course of their business, and should therefore be considered as operating aid."

The Commission letter says that it has "doubts about the appropriateness of the transfer pricing method chosen for the 2007 ruling" and said it had found "several inconsistencies in the application of the transfer pricing method chosen when determining profit allocation to AOE and ASI that do not appear to comply with the arm's length principle."

"To the extent the Irish authorities have deviated from the arm's length principle as regards Apple, the contested rulings should also be considered selective," the letter adds.

The Commission also raises questions about the "open-ended duration" of the 1991 ruling's validity and "the discrepancy between the sales growth and the Irish operating capacity" of ASI.

The Commission has decided to initiate the procedure laid down in Article 108(2) of the TFEU. It provides that if the aid is found to be incompatible, the member state in question must abolish or alter such aid within a period to be determined by the Commission. Ireland now has one month to provide the Commission with specific additional information.

The Irish Finance Department said that the Commission's letter is "simply the next procedural step in the state aid investigation process."

"At this stage, the Commission has not formally decided that there is state aid, only that it is formally examining the case. It is expected that a final decision in relation to this investigation will take a considerable period of time. The purpose of the publication of the Opening Decision is to give interested parties the opportunity to submit comments directly to the European Commission. As this is an ongoing legal process, Ireland will not be commenting further on any individual aspects of the case," the Department added.

Apple said in a widely reported statement: "Apple has received no selective treatment from Irish officials over the years. We're subject to the same tax laws as the countless other companies who do business in Ireland."

TAGS: compliance | tax | business | European Commission | tax compliance | Ireland | tax avoidance | tax incentives | revenue guidance | law | Organisation for Economic Co-operation and Development (OECD) | ministry of finance | tax authority | multinationals | tax planning | transfer pricing | tax breaks | G20 | revenue statistics | tax reform | trade | European Union (EU) | Europe | Tax | Tax Evasion

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