Ireland has confirmed it has lodged a legal challenge to the European Commission ruling requiring repayment of €13bn (£10.89bn) of back tax to Apple, and has issued a strongly worded criticism of its findings regarding breaches of state aid rules
The department of finance said in a statement: ‘Ireland does not accept the Commission’s analysis, which is why we have lodged an application with the general court of the European Union to annul the whole decision.
‘Ireland did not give favourable tax treatment to Apple - the full amount of tax was paid in this case and no State aid was provided. Ireland does not do deals with taxpayers.’
The department has published an outline of its main lines of argument, saying that ‘the Commission has misunderstood the relevant facts and Irish law.’
It says the Commission decision of 30 August 2016 wrongly asserts that two opinions given in 1991 and 2007 by the Irish Revenue Commissioners ‘renounced’ tax revenue that Ireland would have otherwise been entitled to collect from the Irish branches of Apple Sales International (ASI) and Apple Operations Europe (AOE).
It claims these opinions involved no such departure from Irish law, but simply applied Section 25 of the Taxes Consolidation Act 1997 which in accordance with the territoriality principle, taxes only the profits attributable to the branch, not the non-Irish profits of the company.
The department says the decision also mischaracterises the activities and responsibilities of the Irish branches of ASI and AOE. These branches carried out routine functions, but all important decisions within ASI and AOE were made in the US, and the profits deriving from these decisions were not properly attributable to the Irish branches of ASI and AOE. The Commission’s attribution of Apple’s intellectual property licences to the Irish branches of AOE and ASI is not consistent with Irish law and, moreover, is inconsistent with the principles it claims to apply, as is its stated refusal to take into account the activities of Apple Inc.
The Irish government is also accusing the Commission of attempts to re-write the Irish corporation tax rules, and says the assertion that ASI and AOE were granted an ‘advantage’ is incorrect, since the opinion given was not selective and did not depart from normal taxation.
It is particularly scathing over what it identifies as the Commission’s incorrect views on the arm’s length principle (ALP). It says the Commission wanted the Revenue Commissioners to apply its version of ALP which it says is not part of EU law or the relevant Irish law in relation to branch profit attribution, and so Irish government argues the Commission’s claim is inconsistent with member state sovereignty in the area of direct taxation.
The legal challenge states: ‘The Commission is wrong to maintain that ALP is inherent in Irish law, that Section 25 was applied inconsistently or that Section 25 confers any impermissible discretion. Section 25 confers no such discretion on the Revenue Commissioners.’
The Irish government maintains the Commission never clearly explained its state aid theory during the investigation, and the decision contains factual findings on which Ireland never had the chance to comment.
It also accuses the Commission of infringing the principles of legal certainty and legitimate expectations by invoking alleged rules of EU law never previously identified, which it says are ‘novel and their scope and effect are wholly uncertain’. The Commission invoked OECD documents from 2010, but (even if they were binding) these could not have been foreseen in 1991 or 2007, the department of finance said.
Apple has also issued its own formal appeal against the ruling which it said had ‘no basis in law’, saying the Commission had failed to prove that ASI had received special treatment from Ireland.
The Commission has said it will defend its position in court. Commentators suggest that resolving the case could take five to seven years.
