herald

Monday 11 December 2017

Apple case more serious than the Government says

This week EU Commission published a 21-page letter outlining its case that Apple's Irish tax arrangements constituted illegal state aid.

In the letter, sent to the Irish government last June, the Commission throws the book at the Irish government, alleging that two agreements between the company and the Revenue Commissioners, one in 1991 and the other in 2007, "constitute state aid".

In truth the writing has been on the wall for Apple's Irish tax arrangements ever since May 2013 when the US Senate's Investigations Sub-Committee revealed that Apple was paying an effective tax rate of less than 2pc on profits being routed through Ireland.

The Sub-Committee also alleged that Apple had negotiated a "sweetheart" tax deal with the Irish, an allegation that was strongly denied at the time by the Government.

So what has the Government done about this over the past 17 months?

Apart from denying that there was any problem, very little would appear to be the answer.

Instead it has resolutely stuck its head in the sand and hoped that the problem would somehow go away.

Well it hasn't and it won't.

The publication of the Commission's letter should serve as a warning to the Irish government to wake up and smell the coffee.

thorny

The Commission is on the war path and won't be fobbed off with the usual response that Apple's Irish tax affairs are hunky dory.

At the heart of the Commission's case against Ireland is the thorny issue of transfer pricing - the price one Apple subsidiary pays another Apple subsidiary for goods and services.

It has been long suspected that many multinationals, not just Apple, seek to manipulate transfer pricing to lower their tax bills.

This is done by having a subsidiary in a low-tax country such as Ireland charge a subsidiary in a high-tax country such as France or Germany an artificially high price.

This has the effect of maximising profits in the low-tax country while minimising them in the high-tax country.

In its investigation the Commission seems to have uncovered evidence of what looks suspiciously like the manipulation of transfer pricing.

It alleges that the 65pc costs mark-up on goods and services supplied by one of Apple's Irish subsidiaries, AOE, to Apple subsidiaries in other countries appeared to have been "reverse engineered" to produce a particular figure for taxable income.

The company has come out fighting in response to the Commission's charges, stating: "Apple has received no selective treatment from Irish officials over the years".

scrutiny

The statement added: "We're subject to the same tax laws as the countless other companies who do business in Ireland".

This may well turn out to have been the case but, as the old saying goes, when you're explaining you're losing.

The Irish tax affairs of Apple and other American multinationals such as Google are under scrutiny as never before.

We have a problem with how our corporate tax system is being manipulated and if we don't fix it soon then we can be sure that others will fix it for us.

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