The effect of the Irish tax rulings was effectively to allow Apple to manipulate the tax residence requirements so that they paid corporation tax in Ireland at a marginal rate by allowing it to allocate its sales profits to its "head office" when this "head office" had no operating capacity to handle or manage any substantive business. However, only the Irish branch had capacity to generate income from trading and so the sales profits should have been fully taxed in Ireland (at the remarkably low corporation tax rate that exists in that jurisdiction). That practice, according to the Commission, was unlawful State Aid and Apple were due to pay back taxes of around £13billion plus interest.
In reaching its decision the Commission applied recognised principles which govern State Aid intended to protect fair competition within the EU. If Apple was effectively receiving a £13billion grant of aid from the Irish Government then that is surely a measure which distorts competition within the EU and Commission had to address it. However, the Irish Government will inevitably challenge the decision partly on the grounds that it is a violation of their sovereignty and interferes with Ireland's right to regulate its own tax affairs. Apple will complain (as they already are doing) that it is the EU adopting an unfair and protectionist stance by deliberately targeting a vastly wealthy US organisation operating within its borders. Even the US Government has intervened with Paul Ryan, the Speaker of the House of Representatives saying yesterday that "Slamming a company with a giant tax bill — years after the fact — sends exactly the wrong message to job creators on both sides of the Atlantic".
The fight that will now ensue could hardly be a better example of the economic, political, legal and philosophical problems that currently confront the EU. Economically, a level playing field is absolutely essential for fair competition. Fair competition is essential because it drives prices down to the benefit of consumers. But consumers hardly seem bothered about Apple's favourable tax treatment, particularly in Ireland where the Apple's presence is undoubtedly a boost to the economy and to employment across the country. The ambivalence that consumers are exhibiting is quite striking as one would have thought that the idea of one of the richest companies in the world receiving enormous tax benefits when consumers are paying income tax at a vastly higher rate would be abhorrent to them. But that is apparently not the case even though, in recent years, Google and Starbucks and other multi-national firms have come under criticism in this jurisdiction in relation to their tax position.
,The Commission is, of course, justifiably bothered about Apple's tax position because its role is to protect competition and consumers across the EU not just in Ireland. Its oversight is crucial for the proper functioning of the internal market but its ruling is not seen by many as legitimate oversight. Rather is it seen as an unjustified interference in the sovereign tax affairs of Ireland. Sovereignty, it seems, even in a pro-EU jurisdiction such as Ireland is still jealously guarded. But the reality is that, on matters concerning the economy, Ireland is in an EU wide jurisdiction - a fact that Member States, in these difficult economic times, seem increasingly reluctant to accept.
So, enforcing the most fundamental rules of the EU Treaty is not all that straightforward and it is interesting to see the lack of public outcry one way or the other at the decision, perhaps because people don't know whose side to take. Do they want one of the wealthiest companies in the world to pay more tax? They probably do particularly when corporation tax levels are already significantly lower than income tax which they pay. But do they want to side with the EU Commission? It's a dilemma but one which will not be settled any time soon. The process of appealing the Commission decision will now start and if we all hold our breath long enough the Court of Justice in Luxembourg will tell us the answer in a few years. By that time, of course, the UK may be outwith the single market and able to offer Apple whatever tax breaks it likes. In that event it will be very interesting indeed to see if the UK consumer is as accepting as the Irish one.
