The investigation into tax arrangements between Apple and the State could be the first of several, EU competition commissioner Joaquin Almumia has said.
The commission suspects that letters of comfort from Revenue gave treatment that could constitute state aid for the multinational.
But a government spokes- person said: “We are very confident that there is no case to answer.”
If the commission finds the tax arrangements were effectively state aid, the Government could be required to claw it back from Apple, the commissioner said, but it was too soon to say under what conditions.
The commission will focus on transfer pricing. This can be used to shift the tax base or to increase the losses in one company. The US Congress hearing last year into Apple said this and other arrangements meant Apple ended up paying just 2.2% of their profits in tax.
Apple was among the first companies in Ireland to avail of the so-called Double Irish where no tax is levied on one Irish company that is resident in a tax haven such as Bermuda, but this firm bills the second that is both incorporated and tax resident in Ireland for using its intellectual property. The cost of such royalties and fees can be offset against tax due in Ireland.
The commission is expected to consider whether the costs charged are inflated and the same as if being sold to an independent client. The Government introduced new rules four years ago to ensure this would be the case.
About 15 multinationals are using similar structures. The Government brought in some changes in the last budget so that from January, companies incorporated in Ireland must also be tax resident.
The commission’s power in the area of tax is limited and they cannot change tax rates, but they have very strong power in ensuring that countries are treating all companies equally and are not subsidising any by giving them preferential tax breaks.
They requested information about letters of comfort — known as tax opinions — from seven countries where they are used, and will hold a full investigation of their use in Ireland in relation to Apple, in the Netherlands with Starbucks, and Luxembourg with Fiat Finance and Trade.
However, Mr Almumia said that this was the beginning of the process of the commission informing itself on how tax systems were being used, in particular with multinationals. Asked if there would be further developments, he said: “I cannot exclude anything.”
A government spokes-person said that they had responded to various requests for information over the past year. “This is not about the tax rate. There was no smoking gun to substantiate claims of a low 2% tax rate — if they found it they would have said it. There is no special deal with Apple”.
The commission is also investigating the use of the so-called patent box in nine states that applies a lower rate of corporation tax for income earned on the basis of patented research.
He could not give a time for when the investigation would be complete, but Irish sources said they hoped it would be done in six to 12 months. If the decision goes against Ireland it would be appealed to the European Court.
University College Cork economist Seamus Coffey said the main danger was to the country’s reputation as it created uncertainty for firms that may be considering setting up in Ireland.
The commission has launched court proceedings against Luxembourg because they failed to provide them with the information they requested.
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