Dr. Jim Stewart:

I am an academic working in the school of business, Trinity College. I have been working and researching the area of corporate taxation and the taxation of multinational enterprises, MNEs, for many years. MNE tax strategies are complex but often obscure. The tax strategies of Apple were first revealed in detail by a US Senate sub-committee in 2013. These complex arrangements were known to very few. One reason for this is that all Apple subsidiaries in Ireland are incorporated as unlimited companies and file very little financial information.

There are three main aspects to my presentation: Apple structure and tax strategy, aspects of the Commission decision, and some implications of the Apple appeal. Ireland is very important to Apple in terms of profitability and tax structure. Form 10K for 2015 states, "Substantially all of the Company's undistributed international earnings ... were generated by subsidiaries organized in Ireland." The Apple group has seven subsidiaries incorporated in Ireland and three are not resident for tax purposes.

There are a number of reasons for the success of Apple, in particular the development of organisational competencies, market power and intellectual property. Apple profitability reflects all three aspects. Organisational competencies include factoryless production, or contract manufacturing, from which ASI benefits enormously in respect of Apple production in China.

Apple Ireland is HQ for European operations, including India, Middle East and Africa. The US Senate report found that one subsidiary in Ireland, Apple Sales International, had no employees, no fixed assets and income of $22 billion in 2011, on which it paid tax at the rate of 0.045%. The effective tax rate for ASI fell to 10% of that number by 2014, to 0.005%. The ability to remain incorporated in Ireland but not resident for tax purposes in any country was ended in the Finance Act 2013. As a result, Apple Ireland has been reported in 2016 to be the largest taxpayer in Ireland.

The appendix to my presentation shows various measures of effective tax rates, ETRs, for Apple for the period 2006 to 2015. The table shows that while the Apple group pays corporation tax, although not at the statutory rate, little corporation tax is paid outside the US due to large foreign tax savings, largely arising from Irish operations. The foreign tax charge on overseas earnings amounts by one measure to 5.2%, by another to 3.4%. As a result of Apple's overseas tax rate being so low, a tax credit for overseas tax is also low, so that on repatriation of those profits, Apple would be subject to a much higher tax rate.

The Department of Finance summary of the basis of Ireland's appeal does not refer to the fact that ASI and AOI are registered companies in Ireland, but rather refers to the Irish branches of ASI and AOI. There are several important legal requirements for an Irish incorporated company, as distinct from a branch. The country of incorporation has assumed greater significance because of European Court of Justice rulings. For example in the case of Eurofoods, incorporated in Ireland, there was a dispute as to whether the firm should be liquidated in Ireland or Italy, where the parent company Parmalat was located. The European Court of Justice ruled that the registered office, the place of incorporation, was the centre of main interests. This firm also had no employees and no fixed assets. ASI and AOI were regarded by Revenue as not tax resident in Ireland because ASI and AOE had a trading activity in Ireland through their respective branches but were managed and controlled outside Ireland. Furthermore, both companies were not resident in any other jurisdiction.

Apple has argued that ASI could be split into two branches, even though it had no fixed assets and no employees, and this argument was accepted by Revenue. The Commission states that the two tax rulings issued by Ireland concerned the internal allocation of these profits within Apple. One branch in Ireland earned very little profit and paid tax on those profits. The other part, the headquarters branch, earned most profits and paid no tax. The Commission issued a press statement to the following effect:

Specifically, Revenue endorsed a split of the profits for tax purposes in Ireland: Under the agreed method, most profits were internally allocated away from Ireland to a "head office" within Apple Sales International. This "head office" was not based in any country and did not have any employees or own premises. Its activities consisted solely of occasional board meetings.

The Commission comments on this organisational structure as follows "since ASI's and AOE's Irish branches do not have a separate legal personality from the companies to which they belong, neither those branches nor any other part of those companies, in particular their respective head offices, could be said to separately own the assets or owe the liabilities of those companies".

Why were ASI and AOI regarded as non-resident companies? Apple and Ireland claim that critical business activities conducted by or for ASI and AOE were conducted outside of Ireland, for example through Apple Inc. employees or the board of directors of ASI and AOE. In contrast, the Commission could find no evidence that AOI or ASI were managed and controlled outside Ireland.

Why is ASI so profitable if it has no fixed assets or employees? The Commission decision states that ASI and AOE had the beneficial ownership in their territory of the intangible property developed as a result of the research and development conducted under the cost sharing agreement with Apple.

One of the criticisms of the Commission decision is that Ireland would become a tax collector for the rest of the world. The Commission press release of 30 August 2016 states, "The amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the profits recorded by Apple Sales International and Apple Operations Europe for this period". The Commission decision refers to two cases where this has happened, namely, Italy where according to press reports the amount was approximately €318 million, and one other unnamed country. The transfer is indirect. It is not a direct transfer from the Irish State. Such reallocation of profit from Ireland to other countries, mostly EU countries, has become common. There have been around 100 such adjustments since 2005, involving a reduction in profits declared in Ireland, a consequent repayment of Irish corporate tax of around €900 million and an associated increase in reported profits and corporate tax payments in other countries. There are likely to be far more cases involving Irish subsidiaries in future years because of increased data provision to jurisdictions in other countries, in particular country by country reporting. Such adjustments could be seen as a form of introduction of consolidated corporate tax base, CCTB, but on a bilateral basis.

Revenue, in commenting on the decision to appeal the Apple decision, stated, "MNEs should pay tax on profits and it is not the function of Revenue to defend the use of international tax law by multinationals". By appealing this case the Irish Government appears to be doing just that. The Irish Government case is identical to the Apple case. The Irish Government has spent considerable sums in defending the Apple case and there will be further expenditures in the future. In the absence of these expenditures, Apple expenditures are likely to be much higher. The words "Apple" and "Ireland" are continuously conjoined in the Commission decision, giving the impression both cases are identical.

In the context of Brexit, where we are likely to seek important concessions from our EU partners, and special economic measures perhaps in an emergency for certain sectors, it is unfortunate that in two major areas, the introduction of CCTB and CCCTB and the Apple case, Ireland is in dispute with the Commission. There is a high risk that, by appealing this case, a number of EU Governments and, perhaps more important, public opinion in EU countries will interpret this appeal as support for Apple's tax strategy. Apple has deep pockets and this appeal could last several years, a constant reminder to public opinion that Ireland apparently supports Apple's tax strategies.

The Commission case is very strong. Apple and the Irish Government are likely to lose this case, but irrespective of the decision, appealing this case is a mistake and is not in the public interest.