Commissioner expresses ‘reasonable doubt’ over Apple tax deal

The new EU Competition Commissioner has said there is reasonable doubt about whether Apple’s tax arrangements with Ireland were legal.

In her first comments on the investigation into the US tech giant’s tax affairs in Ireland, the Danish Commissioner Margrethe Vestager said the case remained open.

This is despite Minister for Finance Michael Noonan’s remarks last month that he expected the case to be dropped.

Ms Vestager said the tides were turning against unfair tax arrangements, and that the public had become more and more sceptical about the fact that there are back door arrangements which can be extremely attractive and selective for some companies.

Ms Vestager also said she had concerns about the length of time the government was taking to phase out the so-called Double Irish tax arrangement.

In an interview with RTÉ News, Ms Vestager said “the case is open and we don’t know the outcome yet. The reason that we have an open case is that there were reasonable doubts as to whether fiscal aid was involved.”

In September the European Commission formally announced that it regarded two tax arrangements agreed between Ireland and Apple had amounted to illegal state aid.

At the time the Commission said it was their preliminary view that deals entered into in 1991 and 2007 constitute State aid and that they were part of a deal not to jeopardise Apple jobs in Ireland.

The Government has vehemently rejected the Commission’s preliminary finding and vowed to take the issue to Europe’s highest court if there is a finding against the company.

However, Ms Vestager said that the case would continue to discover if Apple was given any unfair advantage over other companies.

“What we’re doing in the procedural steps is to figure out is there any discrepancy between market reality and the way that a company is treated.”

The Government is understood to have argued that the Commission was applying a 2010 accounting standard retroactively to an arrangement that was made between Apple’s tax advisors and the Revenue Commissioners in 1991.

However, Ms Vestager rejected this.

“We do not impose law or legislation which was not in force at a certain time.  What we have to figure out is whether or not market conditions were met.”

In November Mr Noonan said he expected the Apple investigation to be dropped.

Speaking in Brussels on 7 November, Mr Noonan said “it’s more likely that that investigation will be dropped rather than there being further investigations.

“My legal advice is that the Irish authorities will win the case quite easily and that there isn’t a very strong case by the Commission.”

Ms Vestager also expresed reservations about the length of time being taken to phase out the controversial Double Irish tax arrangements.

Minister Noonan announced the phasing out of the measures in October’s budget.

However, Ms Vestager said that the length of time being taken to phase the measures out was a very long period.

“I would like to have a deeper understanding of why such a long time frame is necessary, because six years is a very long time, taking into consideration how things have been handled in similar cases.”

Ireland, the Netherlands and Luxembourg have been in the front line in terms of how their tax arrangements with global multinationals are being challenged on illegal state aid grounds.

Ms Vestager said, however, she had no issue with any member state.

“Where we have an issue is when we find suspicion of state aid, of fiscal aid, of tax rulings not being a tool of legal certainty, but being a tool of fiscal aid.”

Her remarks come amid a heightened debate in Europe about how multinational companies are taxed.

This week there was a second so-called Luxleaks revelation, alleging further tax avoidance by large companies via intricate schemes based in Luxembourg.

While the government’s 12.5% corporate tax rate is largely acknowledged as transparent and legitimate, the renewed controversies surrounding alleged tax deals have come at an uncomfortable time for Ireland.

The Luxleaks scandal has prompted the new European Commission President Jean-Claude Juncker – himself a former prime minister of Luxembourg, and under fire for his alleged role in the affair – to bring what are called harmful tax practices to the top of the Commission’s agenda.

As such the Commission will unveil a new initiative on greater transparency around tax rulings – or letters of comfort given to multinationals – early in 2015.

It will also relaunch its proposal on a Common Consolidated Corporate Tax Base, a mechanism whereby international firms with multiple subsidiaries within the EU would have a simplified approach to paying corporate tax, but which the Government has warned could lead to harmonising the corporate tax rate through the back door.

Last week the British government announced a new tax to prevent companies like Google channelling profits from UK sales through Ireland.

France, Italy and Germany have also announced a joint initiative against what they call harmful tax practices.

Asked if she thought there were now hostile forces ranged against Ireland’s tax policy, Ms Vestager said the tides were changing against how governments tax big multinational corporations.

“It’s never nice if you feel that you’re singled out.  But the other side of the coin is the fact that a number of member states have the experience that their tax schemes or tax rulings are being debated in a different way than it was debated two, or three or four years ago.

“I think that the tides are changing because in a lot of countries, people think, why don’t you just make them pay the taxes that are fair.”

Ms Vestager said she was not against multinational companies that were successful and created jobs.

“Europe is about fairness and having the ability to grow a company, to be successful, to create jobs, but not while bullying others and trying to make a benefit on the wrong terms.

“I think the things we’re discussing in these years also reflect this:  that people are more or less in acceptance that we have corporate tax levels by the front door, because the levels are very different, one in Denmark, one in Ireland, one in Germany, one in Italy.

“But I think they feel more and more sceptical about the fact that there are back door arrangements which can be extremely attractive and selective for some companies.”

The Government responded in July to the Commission’s initial findings on the Apple case.

Since the main elements of the investigation were made public in September, interested parties – in other words the company and any other member states – have been invited to provide their own response.

Those documents have now been forwarded to Dublin for the Government’s final response.

Irish officials say they will take the case to the European Court of Justice if the Commission finds against Apple.

If the Commission does prevail, Apple would have to repay any foregone tax to the Irish exchequer going back to 2004.

Ms Vestager has a special team investigating the tax arrangements of big companies under state aid rules.

While they will come up with the finding, it is up to the Commissioner herself to make the final pronouncement.

The Government is thought to be concerned at the uncertainty hanging over the case, and the impact that might have on investment decisions by multinationals.

Ms Vestager said she hoped the investigation would be wrapped up by the spring.