Commenting on today’s ruling from the European Commission that Ireland breached EU state aid rules by granting undue tax benefits of up to €13 billion to Apple, Ken Almand, a UK tax partner from RSM commented:
‘Should a large international corporation be able to do a special deal with a tax authority resulting in it paying less tax? With a tax rate equivalent to 0.005 per cent? And should the European Commission be able to use state aid rules if it considers such deals distort fair competition? These are key questions that arise in a case involving Apple and the Irish government and which have provoked a war of words between the US and Europe. The commission has been investigating Apple to see whether agreements that it entered into with the Irish government have resulted in the group paying little tax on its European earnings. It published its findings today and is demanding that Apple pay up to £13billion tax plus interest on profits earned. This dwarfs previous Commission rulings where the amounts involved have typically been €20m - €30m.
‘But is the European Commission right to use state aid rules and is it acting as an international tax police force? The rules were intended to ensure a level competition playing field between countries and using them to enforce national tax rules has raised eyebrows. The US Treasury is unhappy and has fired warning shots across the Atlantic in recent days suggesting that Europe is targeting US corporations and jeopardising international attempts to cooperate in the battle against tax avoidance. It has suggested that the ruling may lead to retaliatory measures against European business although it is unclear exactly what the Treasury has in mind.. The fight against tax avoidance therefore seems set to lead to further skirmishes between the US and Europe.
‘What are potential wider implications of the ruling? For a start this may be the signal for other tax authorities, both US and European, to decide whether they want to fight for a larger share of the Apple tax pie. Indeed, at today’s press conference the commissioner issued what seemed to be an open invitation to tax authorities both in the EU and outside it, to re-examine Apple’s tax filings. The investigation has highlighted a number of facts that may lead them to open their own enquiries if they feel their country has earned less than its fair share of profits from Apple’s operations. Potentially the US- Europe tensions may harm the recent cooperation by countries uniting behind an OECD action plan to tackle international tax planning. It may also affect the tax policies of other corporates and the tax and reputational risks that they feel comfortable bearing.
‘One other point is worth making. Tax enquiries and assessments are governed by time limits, which will be different in each jurisdiction. There is, broadly speaking, a 10 year look-back period for recovery of state aid under EU law. That is much longer than the time limit for the assessment of unpaid taxes in most countries unless fraud is alleged, which is not the case here. So even if the EU is successful in its case it doesn’t automatically follow that the tax authorities will be able to collect the tax that the commission considers to be due.
‘This is one story that we are unlikely to have heard the last of. Not only has Apple made it clear that it would appeal any adverse decision, but the Commission is still investigating 1000 other rulings.’