By Sam Schechner
The European Union contends that Irish tax authorities have been "inconsistent" and "not systematic" in their treatment of multinational companies like Apple Inc., according to a newly disclosed filing that further argues why EUR13 billion ($13.6 billion) in tax breaks Ireland granted the iPhone maker were illegal.
In a 130-page decision from August that was made public on Monday, the European Commission, the EU's executive arm, asserted that two Apple units registered in Ireland brought in $130 billion in profit over an 11-year period thatshould have been taxed at Ireland's 12.5% corporate tax rate, but instead remained largely untaxed anywhere.
Apple said Monday it had joined Ireland in appealing the decision, which ordered Ireland to recoup up to EUR13 billion in back taxes from the company. Ireland says that the EU overstepped its powers by trying to rewrite Irish tax law, while Apple, which said it filed its appeal on Monday, has complained about the fairness of the proceedings.
"It's been clear since the start of this case that there was a predetermined outcome," an Apple spokeswoman said, arguing that the EU "took unilateral action and retroactively changed the rules" in order to selectively target the California firm.
The filing highlights stark legal disagreements between the commission on one side and Ireland and Apple on the other, presaging a long battle in the EU's top courts that will determine the extent of the bloc's powers to rein in alleged taxavoidance by multinational companies doing business in Europe.
If the EU prevails, it could call into question tax arrangements by a swath of companies that have relied on tax rulings from authorities in Ireland, Luxembourg and other countries. If Ireland prevails, the EU could see a powerful tool, which is aimed at limiting the help governments can give to individual companies, curtailed.
The tax bill on Apple is by far the highest that Brussels has so far levied in a series of cases against corporate tax deals, some targeting American firms including McDonald's Corp. and Amazon.com Inc. The commission argues the deals constitute illegal "state aid" under EU law because they give specific firms advantages over rivals in the form of lower tax bills.
At issue in the Apple case is whether two Irish tax rulings granted to Apple in 1991 and 2007 gave a form of special treatment to the company, or whether they just reiterated an interpretation of Irish tax law as it was applied more generally.
Those rulings allowed two Irish-registered Apple units to attribute only a sliver of their $130 billion in profit to Ireland, based on what Ireland and Apple say is a reasonable split, given that almost all of Apple's intellectual property is developed in the U.S., not Ireland. Over the 11-year period between 2003 and 2014, the units paid a total of about $90 million in taxes, the EU decision says.
The EU decision published Monday argues that the rulings gave Apple a selective advantage because Apple and Ireland offered no specific evidence to justify how the profit was allocated, and deviated from the "arm's-length principle," a standard for setting commercial conditions between units of the same company as if they were independent.
The EU goes on to say that all of the profit from the two units should be allocated to Ireland, which has a 12.5% corporate income-taxrate. But it adds that the amount could be reduced if Apple paid more tax on that profit in the U.S. or other countries, such as Italy.
Ireland has contended that its tax rulings "did not depart from 'normal' taxation" because it followed a portion of Irish tax code that said nonresident companies shouldn't pay income tax on profit that isn't generated in Ireland.
But the EU shot back in Monday's document that its examination of other tax rulings based on that law "demonstrates no consistent criteria are applied to determine the allocation of profits to Irish branches" and that, in the absence of objective criteria, "those rulings should be considered to confer a selective advantage" on Apple.
Write to Sam Schechner at email@example.com
(END) Dow Jones Newswires
December 19, 2016 11:05 ET (16:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.