In a move that has generated much press interest on both sides of the Atlantic, on 30 August 2016 the European Commission (EC) announced its final decision on its State aid investigations into transfer pricing rulings granted by Ireland to the Apple group. This decision confirms the EC’s opening decision that the rulings in question constituted illegal State aid. The State aid which is estimated by the EC at up to €13 billion has now been determined to be incompatible with the internal market, and must be recovered (with interest) by the Irish authorities from the Apple group. It is expected that the decision will be appealed.
The EC concluded that two tax rulings issued by Ireland to Apple have ‘substantially and artificially lowered the tax paid by Apple in Ireland since 1991’. In the view of the EC, the rulings allowed the taxable profits for two Irish incorporated companies of the Apple group (Apple Sales International and Apple Operations Europe) to be established in a way which, according to the EC, did not correspond to economic reality. Almost all sales profits recorded by the two companies were internally attributed to the companies’ head offices and not to their respective Irish branches. The profits allocated to the head offices were not subject to tax in any country under specific provisions of Irish tax law, which are no longer in force.
As a consequence, the EC confirms its opening decision that both rulings constitute State aid that is incompatible with EU law, although the earlier opening decision focused on the transfer pricing methods used to determine the profits of the two companies in question. The decision requires Ireland to recover the aid from Apple, and provides a specific methodology for calculating this. The EC estimates the total amount to be up to €13 billion.
For more detail on this decision, KPMG’s EU Tax Centre have prepared a Euro Tax Flash.