wednesday, 25 april of 2018

Apple ordered to pay €13bn after EU rules Ireland broke state aid laws

Apple has agreed to start paying €13bn in back taxes to the Irish government within weeks over what EU competition authorities have said was years of sweetheart tax arrangements that amounted to illegal state aid.

Although Dublin and Apple still reject the ruling in 2016 by Margrethe Vestager, the EU’s competition commissioner, the agreement to begin payments marks a watershed in the biggest case in a Europe-wide crackdown against the tax practices of American tech companies.

Apple’s repayments will be held in an escrow account while the company and the Irish government continue their appeals in EU courts.

Ms Vestager’s ruling that Apple was illegally helped through an Irish tax scheme unavailable to other companies has soured transatlantic relations, and forced Ireland to rework its business-friendly fiscal policies.

Under an agreement signed on Tuesday in Dublin between Apple and Paschal Donohoe, the Irish finance minister, the company will make a large initial transfer next month and then will pay in about €1bn in each of multiple instalments through September.

“This is a very, very significant development now in terms of dealing with this issue,” Mr Donohoe told reporters in Dublin. “This is the largest recovery fund of its kind ever to be established and, due to the complexity of such, together with our duty to comply with EU procurement rules, it has taken some time to get to this point.”

The money will be invested by international asset managers in an effort to ensure a financial return for the California-based group should the court appeals succeed and the funds be returned.

Apple has previously said: “We continue to co-operate with Ireland on the recovery process the commission has mandated but remain confident that once the General Court of the EU has reviewed all the evidence it will overturn the commission’s decision.”

Frustrated at delays in collecting the money after its ruling in August 2016, Ms Vestager took Dublin to court in October to force recovery of the money from Apple.

Mr Donohoe, who said he had spoken on Tuesday with Ms Vestager, said Dublin fundamentally disagreed with the ruling of the commission.

“However, as committed members of the EU, Ireland is intent on complying with our binding legal obligations in this regard,” he said.

The company has changed its tax structure since the commission’s ruling but remains a big investor in Ireland with large amounts of intellectual capital held in the country.

An IMF report last week said iPhone exports from Ireland were estimated to account for one-quarter of the country’s economic expansion in 2017. Ireland’s gross domestic product grew 7.8 per cent last year but the figure is distorted by the operations of multinationals such as Apple that are attracted to the country’s business-friendly low-tax regime.

Mr Donohoe declined to provide any details on the payment schedule, arguing any firm timeline on transfers “will then influence the [investment] propositions that are put to us”.

“The challenge of course is [that] this is a very, very large amount of money and in the current environment of low interest rates and yields . . . decisions in relation to where this money is going to be invested will require very careful work,” he said.

Interest on taxes owed would be calculated in line with the timing of the final payment, Mr Donohoe said. “The overall amount of money here is still approximately €13bn and we will be in a position to conclude at the end of the all the payment what is the additional interest,” he said.

He noted that the agreement with Apple would protect the Irish exchequer from any loss on the investment. “Any loss on the fund will reside with the fund not with the taxpayer,” Mr Donohue said.

The money will be held by the London branch of Bank of New York Mellon while Amundi, BlackRock and Goldman Sachs will provide asset management services.

(Published by Financial Times April 24, 2018)

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