Give Me a Crash Course In . . . Apple and the €13bn

So this Apple thing and the €13 billion. Seems nobody saw it coming

You’re right there. Three years ago the European Commission starting investigating contacts between Ireland’s Revenue Commissioners and Apple about the technology company’s tax arrangements in the Republic of Ireland. Revenue gave Apple guidance in 1991 and 2007 on how its profits would be taxed. The European Commission has said that the details of this gave Apple an unfair advantage over other companies. Everyone had expected the commission to find against Ireland, but no one expected it to order Ireland to recoup such an enormous amount of cash.

But a profit is a profit, isn’t it?

Well, yes. And no. The international tax system was not designed for a world where iPhones are designed and developed in California, made in China and sold in Germany. To make it more complicated, Apple routed much of the revenue back through Ireland. The net point of the European Commission ruling is that Ireland should have levied tax on the profits Apple made in all markets outside North and South America, because revenues from these markets were moved through Ireland. Ireland’s case was, and is, that the money was never ours to tax.

But the European Commission doesn’t usually get involved in this kind of thing

It has issued two much smaller rulings, against the Netherlands for its tax treatment of Starbucks and against Luxembourg for how it dealt with Fiat, but the amounts involved were tiny by comparison. The section of the European Commission that investigated these deals oversees competition. It decided that in the case of these two companies and Apple, the countries involved gave the companies what is called a selective advantage – a deal not given to other companies. It thus found that the countries had provided unfair state aid. Underlying all this is the wider international debate about how little tax many US companies pay on their earnings outside the US, by using the interplay of the US and European tax codes.

So what will we do with the €13 billion?

It would make a nice hole in our €200 billion or so of national debt, or fill up a very healthy “ rainy day fund” for the exchequer. But we don’t want it.

Yes we do

No we don’t. Or at least the Government doesn’t. Attracting foreign direct investment is a key part of our economy. Anything that damages this is dangerous for Ireland. The Government argues that this case is confined to Apple and that for the moment no other Irish company is in the frame. However, this is a big push by an arm of the European Commission to get a say in the tax affairs of member countries. A lot is at stake.

Might we see it some day?

The decision will be appealed in the European courts – and both Ireland and Apple will oppose it. Apple may have to pay over the money in the meantime, but as it would get it back were the appeal to succeed, the money will go into a kind of holding account for now – as Father Ted might have said, it will be just “resting in our account”. The appeal process could take five years or more. And there are other complications. The European Commission has specifically said that tax authorities elsewhere in Europe and even in the United States could examine their findings and lay claim to some of the money.

So there could be an international bunfight over the cash?

There sure could. But first there will be a lengthy legal process. Apple and Ireland say they are confident of winning the legal battle, but as there is no precedent – and we haven’t seen the details of the commission’s decision – it’s hard to predict the final outcome of the case.