Following three and a half months of relative silence over the Apple case, arguments came in thick and fast in a considerable row that broke out on Monday 19 December.
Readers may recall that at the end of August of this year, the Commission concluded that the American company had received undue tax advantages in Ireland and was required to pay back €13 billion to the Irish tax authorities (see EUROPE 11612).
On this occasion, Ireland got in the first shot, publishing its own reasoning refuting the Commission's argument on the night from Sunday to Monday. It pulled no punches in its choice of words, accusing the Commission of attempting to "rewrite the Irish corporation tax rules" so that the Irish Revenue Commissioners should have applied the Commission's version of the arm's length principle. The Commission's conclusions do not chime with "member state sovereignty in the area of direct taxation", the Irish authorities concluded.
The Commission, in its 130-page decision which was published on Monday, is calling into question two Irish tax rulings, granted to Apple in 1991 and 2007. Under these rulings, two Irish subsidiaries of the American giant, Apple Sales International and Apple Operations Europe, were reportedly able to allocate virtually all of their sales profits internally to head offices that existed only on paper, the Commission contends. In reality, these tax rulings validated an allocation of profits that does not correspond to economic reality, the European institution goes on to explain. The Commission refutes the argument put forward by Ireland, Apple, the American Treasury and even the OECD, that this profit should have been taxed in the United States.
The intellectual property and research and development are located in the United States, a fact that the Commission is happy to accept. The structure of the group provides for sales of Apple products outside the United States to be registered to Apple Sales International, a company located in Ireland and not subject to taxation in the United States.
The group has a cost-sharing agreement in place. Under this agreement, Apple Operations Europe and Apple Sales International have the right to use Apple's intellectual property to sell and produce Apple products outside the United States. In return, these companies make annual payments to the American company to pay for the research and development efforts. According to the Commission, the two Irish companies in fact were paying 55% of the group's research and development costs. This means, in the Commission's view, that the profits transferred to the empty shell should indeed be taxed in Europe.
Apple announced its intention of appealing, on Monday. It stresses that it is the largest taxpayer in the world, in the United States and in Ireland with an overall taxation rate in the region of 26%. It goes on to explain that as its products and services are created and developed in the United States, that is where it pays the most tax.
According to Apple, the European Commission has undertaken a unilateral action and changed the rules retrospectively, in the face of decades of Irish tax law, American tax law and global consensus on taxation policy.
By coincidence, on Monday the Irish parliament also launched the control and subsidiarity mechanism (the so-called "yellow card" procedure) against the Commission's proposal for a common consolidated corporate tax base ('CCCTB'). This procedure has been used very infrequently. In order to succeed in requiring the Commission to re-examine its proposal and decide if it will keep, change or withdraw the legislative act in question, it must have the support of one third of the votes allocated to the national parliaments. (Original version in French by Élodie Lamer)