Apple reduced escrow fund to pay tax in another country

Escrow fund continues to fall in value while case is under appeal
Apple reduced escrow fund to pay tax in another country

Apple set up the €14.3bn escrow fund pending the appeal of the European Commission tax case. Picture Dan Linehan

The largest part of the reduction in value of the multi-billion escrow fund set up by Apple and Ireland relates to a €209 million withdrawal by the tech giant to pay tax in another jurisdiction, the Public Accounts Committee (PAC) has heard.

Apple's lodgement to the account between May and September 2018, totalled €14.285 billion, but by the end of 2019, the net assets of the fund had declined to €14.02 billion, a loss in value of €265 million.

Comptroller and Auditor General (C&AG) Seamus McCarthy told the committee that the largest part of that reduction in value related to a €209 million withdrawal from the tech giant, in respect of what is referred to as "a third country adjustment."

“The remainder of the loss was attributable to investment losses, administrative expenses, and tax” he stated.

“Separate from the administrative expenses incurred by the fund account, state bodies have incurred significant costs in setting up the escrow account, and in mounting legal challenges to the Commission’s state aid determination,” he added.

The Ireland Apple escrow fund is a multi-billion-euro fund held under the terms of a formal agreement between the Minister for Finance and Apple pending the final outcome of legal challenges to the findings of a State aid investigation undertaken by the European Commission.

The investment and management of the fund is jointly overseen by Apple and by the National Treasury Management Agency (NTMA), on behalf of the Minister of Finance. 

Secretary-General, Derek Moran, and officials from the Department of Finance were questioned by a number of members of the Committee of Public Accounts (PAC) on the decision making process behind choosing an escrow account to hold the funds.

Mr Moran said one of the primary reasons for choosing to keep the funds in an escrow account was to “protect the state against large losses or potentially large losses.” 

“It was seen by the Commission in the first instance, and by ourselves, as the best way to protect the state from that risk,” he said.

“In a negative interest rate environment, even the preservation of the capital amount is going to be a challenge.” 

“The mandate is to preserve the actual amount as near as possible. It is not an investment fund to make big profits, albeit if there is a profit from it at the end of the day, whoever is the winner, it's a winner take all formula.” 

Should the state lose the case, Mr Moran confirmed that the €13 billion, or whatever the balance is on the escrow at that point, will become payable to the Exchequer.

“If we lose, there'll be a big injection of €13 billion” he told the PAC.

"If we win the case, and the money's going back to Apple, the state doesn't have any additional liability, other than to hand back the amount of money that's in the escrow,” he confirmed, adding that this is “one of the fundamental things we want to protect.” 

Deputy Paul McAuliffe, Fianna Fáil, pointed out that “the alternative is also considerable.” “If it does come back to the Exchequer, and we had lost €100 million over three years, that is a fairly terrifying prospect,” he said.

“It is, but I think you have to compare and contrast it with the alternative which I think would almost certainly give you a worse outcome,” Mr Moran said.

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