Seán Haughey (Dublin Bay North, Fianna Fail) | Oireachtas source

I will first respond to the Minister. Last week the Government acted in a less than sure-footed manner in response to this issue. The Minister for Finance announced that the Government would be appealing the Commission's decision and yet no Cabinet meeting took place. A political crisis ensued from that stance which did not play out well across the globe with regard to the Apple situation.

On 30 August 2016 the European Commission announced its decision that Ireland had breached EU state aid rules by granting undue tax benefits to Irish subsidiaries of the US-based multinational corporation Apple Inc. The state aid rules of the European Union represent a key aspect of competition policy which constitutes a competence of the EU Commission and not member states. The objective of state aid policy is to ensure fair and undistorted competition between firms within the single market. However, a crucial condition for a matter being classified as illegal state aid - this would appear to be of primary importance in the case of Apple’s tax arrangements in Ireland - is that the this aid must confer an advantage to the recipients that competitors cannot avail of. There has to be evidence of preferential treatment to a particular firm. This has been a long standing principle of EU case law for several decades and has been cited in a number of Commission precedents. It is not clear at this stage whether the crucial condition of preferential treatment was present in the case of Apple. It may have been the case that Apple was simply availing of arrangements that were available to any other multinational corporation at the time. In such an instance there is no illegal state aid because the advantage conferred is not selective. This point has been made by the Treasury Department of the United States in a White Paper on the recent EU state aid investigations. The Treasury has asserted:

Recent decisions appear to deviate from established case law and its past practice ... The Commission’s position that individual transfer pricing rulings are selective when given to a particular multinational company, even when other multinational companies could have obtained them, constitutes a new approach that has not previously been applied.

The Treasury went on to state in rather stark terms:

This shift in approach appears to expand the role of the Commission’s Directorate-General for Competition beyond enforcement of competition and state aid law under the Treaty on the Functioning of the EU into that of a supra-national tax authority that reviews Member State transfer price determinations. The cases cited by the Commission do not give taxpayers prior notice that the Commission would interpret its powers in this way or that selectivity would no longer be a meaningful precondition to a finding of state aid ... In the state aid cases, there is no evidence (and the Commission has not argued) that other multinational companies could not have obtained the same rulings as the companies now under investigation.

This approach to analysing such tax rulings under state aid law appears to represent a break from standard practice and therefore it is perhaps unsurprising that it has been viewed by many as an undue encroachment on the part of the Commission into the sovereign tax affairs of a member state. The former EU Commissioner for Competition, Neelie Kroes, writing in The Guardiannewspaper last week said that state aid rules represent:

A tool to address instances where a member state has made an exception to its own rules and given a specific company an advantage ... EU member states have a sovereign right to determine their own tax laws. State aid cannot be used to rewrite those rules. However, the current state aid investigations into tax rulings appear to do exactly that.

This retrospective enforcement of what appears to be an entirely new approach to the matter of state aid policy, if allowed to go unchallenged, risks undermining the tax certainty upon which businesses depend in making their employment and investment decisions. An appeal is the only course of action that can be countenanced given the potentially negative implications of this ruling on the integrity of Ireland's taxation system and our overall strategy for economic development which has been based to a considerable degree on creating an attractive environment for foreign direct investment since the late 1950s and early 1960s.

There is no evidence to suggest that the rulings granted to Apple by the Irish Revenue Commissioners were not given in good faith or in a manner that was inconsistent with Irish tax law and therefore could have been available to any other multinational corporation that was located here. It is important to stress that the allocation of profits on sales which physically occurred in Ireland were consistently subject to Irish taxation. Those sales which occurred elsewhere were not taxed in Ireland or anywhere else as they were attributed to the head offices of the Irish subsidiaries which in reality had no physical location or staff. That multinationals could structure their tax affairs in this way reflects shortcomings in existing international transfer pricing arrangements and not any misconduct on the part of the Irish Revenue Commissioners. It would seem unreasonable that Ireland could be expected to be the tax collector for up to 60% of Apple’s global profits, particularly when the vast majority of these profits related to sales and other activities which occurred outside Ireland.

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