Apple in spotlight over claims of sweetheart deal

Once again Ireland and its tax dealings with multinationals is centre stage as the European Commission investigates if the State has an illegal sweetheart deal with Apple.

The Irish Examiner provides some of the answers to this complex investigation and the facts behind it:

Q. How did we get to where we are at?

A. With the financial crisis leaving governments in the red, the spotlight turned to what companies were paying, and where they were paying their taxes, if they were paying any at all.

Apple and Ireland made global headlines when the US Senate questioned the top brass, accusing them of using their Irish company to avoid paying tax in the US on $136bn worth of profits.

Is this what the European Commission is investigating then?

A. No. This is an issue the US could resolve by changing its laws, but it doesn’t appear to be in any rush to do so.

So what deal is the European Commission investigating?

A. It is looking into a special arrangement the State came to with Apple in the early 1990s, and revised in 2007, on what is known as transfer pricing arrangements within the Irish branches of Apple Sales International and of Apple Operations Europe.

So what was the deal?

A. The details have never been made public but it related to how much profit the company would say was generated as a result of the work of its staff in Apple Cork — and this would decide how much tax it owed.

Is it different to the current deal?

A. The old deal was revised in 2007 when the numbers employed at Hollyhill grew towards 3,000 and was designed to cover the increased number and functions of the staff.

Did the Irish deal save Apple much money?

A. According to the US Senate, the result was that instead of paying 12.5% tax, it paid just 2%.

Are we talking about a lot of money?

A. According to US Senate, in 2011 the Irish operation paid $10m in tax to the Irish Government at the 2% rate. If it paid the full 12.5% it should have paid about $65m — so the State lost out on $55m.

Why is the European Commission concerned?

A. All EU members have agreed they will not give any of the companies operating in their states an advantage over any other, through for instance letting them pay less tax.

Why has it come up now?

A. The US Senate grilled Apple chiefs over the $136bn the company has in an Irish incorporated company. The products, the patents, the management and design is all done in the US but the company is registered in Ireland as it is legally entitled to do. But because all the work is located in the US, the Irish do not claim tax, and because the company is registered in Ireland, the US is unable to claim tax.

Has this anything to do with the EU’s probe?

A. Not directly. The EU probe focuses very specifically on whatever tax deal the Government did in relation to Apple’s Hollyhill operation.

Will the commission’s investigation affect other companies?

A. It could.

Is Ireland the only country?

A. No. Luxembourg is also under investigation, as are the Dutch.

What are the implications for Ireland?

A. It could be found guilty of giving preferential treatment to Apple which is contrary to EU competition rules. The main damage could be to Ireland’s reputation as a country that has a generous tax system but treats everyone equally.

Will there be penalties?

A. Fines but Apple could be told to hand over the $55m or so additional tax.

What happens next?

A. Today, the European Commission will issue a public notice saying it has completed the first phase of its investigation and now has a document from which all sensitive commercial material has been removed.

This will be published in the EU’s legal journal and become public next Tuesday. Interested parties have a month to send submissions.

The Commission will likely spend the next year looking into all this and eventually issue its decision.

Are appeals possible?

A. Yes, the Government can appeal the matter to the European Court of Justice.

Do the changes to the tax system made in the budget affect this?

A. No. The Government is making changes to be seen to comply with a move by the G20 and the OECD to cut down on the ways companies play one country off against another, and end up paying nobody any tax.

Will it affect the 12.5% rate of corporation tax?

A. No. Although it continues to come under pressure.