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Some thoughts on the #Apple case, Ireland and tax: The Court’s reasoning is very limited – as a result of viewing this solely within the framework of EU state aid law. THREAD 1/
There are big limits to using the state aid to tackle tax avoidance. The Commission's ruling on Apple did not have the scope required to deal with the fact that it was booking its non-US sales through Ireland instead of paying tax in the countries where the sales took place 2/
So the issue at stake under the state aid rules was focused only on whether Apple was provided with an unfair advantage through two tax rulings by Revenue – a “sweetheart deal” 3/
The Commission’s 2018 ruling found Ireland provided illegal state aid to Apple through these two tax rulings; that profits could not be attributed to the “head office” or stateless branches as there was no substance to them; 4/
It found that these profits must necessarily then be attributed to Apple’s Irish-resident subsidiaries; and that as a result Apple owed Ireland €13 billion plus interest. 5/
The Commission stated: “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” 6/
“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 found 7/
Apple’s tax structure before 2015 was not, strictly speaking, a Double Irish structure because the Double Irish requires another subsidiary to actually exist in another tax haven, like Bermuda. In Apple’s case the head office was located *nowhere* 8/
The General Court today stated that the Com incorrectly concluded Revenue "had granted ASI and AOE an advantage as a result of not having allocated the Apple Group IP licenses held by ASI and AOE, and consequently [all non-American sales income], to their Irish branches” 9/
“The Commission should have shown that *income represented the value of the activities and functions actually performed by the Irish branches of ASI and AOE*, on the one hand, and the strategic decisions taken and implemented outside of those branches, on the other” 11/
This is a really poor outcome. The whole point of the COM’s case was that Revenue endorsed a scheme in its tax rulings in which Apple was allowed to artificially internally allocate the profits of 2 of its subsidiaries in a way that had “no factual or economic justification” 12/
Again – Apple’s method of routing all of its European sales through its Irish subsidiaries was beyond the scope of this state aid investigation 13/
The Court appears not to examined the position on the question of whether the phantom “head office” had any substance or not. It asks for proof of something that can’t be proved. 14/
The COM can’t prove the Irish subsidiaries’ actually performed the activities that created value – because: (a) the value was coming from international sales, which the Court refused to examine, and... 15/
...(b) the profits were artificially allocated to an imaginary "head office", which the Court also refused to examine. The Court’s refusal to acknowledge there was no substance to this “head office” is ridiculous. 16/
Like with the #Starbucks case, which the Commission also lost, it shows the serious limitations of examining and regulating tax avoidance through transfer pricing in a “state aid” framework. 17/
For example, if a tax haven wants to give several companies special deals where they pay practically no tax, it won’t meet the EU’s state aid criteria because the advantage is available to more then one company or sector. 18/
Two EU proposals – for a common consolidated corporate tax base (CCCTB) and a digital tax on the turnover (as opposed to profit) of tech giants – could help end this farce but they are blocked in the Council by tax haven countries including Ireland. 19/
Meanwhile, the Irish government actively helped Apple set up a new tax avoidance structure, using capital allowances for intellectual property. Changes in Ireland’s tax law in 2014 have provided Apple with a near-total offset mechanism for sales profits. 20/
Apple organised a new structure in 2014-2015 that included the relocation of its non-US sales and IP from “nowhere” to Ireland, and the relocation of its overseas cash to Jersey, in which the company is granted a tax write-off against almost all of its non-US sales profits. 21/
It is based on the use of full capital allowances for expenditure on IP and massive intra-group loans to purchase the IP, with full deductions on the interest paid for these loans, in order to cancel out the tax bill arising from sales profits. 22/
We identified this technique – now being widely used by tech and pharma companies – calling it the #GreenJersey in a report I co-authored in 2018. 23/ https://emmaclancy.com/2018/06/21/the-green-jersey-is-ireland-helping-apple-pay-less-than-1-tax-in-the-eu/
Apple’s offshore cash pile soared in the years after it transitioned to the “green jersey” in 2014/2015. Image from @ICIJorg
Last year the IMF put Ireland in a list of the top 10 tax havens in the world, alongside the Cayman Islands, Bermuda and Switzerland, responsible for a rise in "phantom investments" 25/ https://www.imf.org/external/pubs/ft/fandd/2019/09/the-rise-of-phantom-FDI-in-tax-havens-damgaard.htm
These "phantom investments" are so-called FDI that in reality passes through shell companies to avoid tax. The report singles out Ireland, and reports that two-thirds of our FDI is made up of these "phantom investments"! 26/
To finish: State aid rules are insufficient to tackle tax avoidance in the EU, & the US has pulled out of OECD talks on a new global framework to tax value where it is created. We need a UN summit on global unitary taxation, where corporations are treated as a single entity. 27/
