EC letter to Ireland on Apple State-Aid Case

The document is here.

There is a lot in it and the extracts here just focus on one element of it: a 1991 transfer pricing agreement that was done on a cost-plus basis, i.e. the profit attributed to the Irish operation was based on the costs incurred by the Irish operation.  This is not an unusual transfer pricing basis and, as expected, the amounts involved are relatively small, i.e. not billions.

The quirk is the structure of the agreement. For example the 1991 agreement for Apple Operations Europe was  [from paragraph 31]:

According to that ruling, the net profit attributable to the AOE branch would be calculated as 65% of operating expenses up to an annual amount of USD [60-70] million and 20% of operating expenses in excess of USD [60-70] million.

In the notes of a meeting (attendees not provided) it was said that (paragraph 37):

Following further discussions it was agreed that, subject to receiving a satisfactory outcome to the capital allowance question, to accept a mark-up of 65% of the costs attributable to the Irish branch. In addition it was agreed to accept a mark-up of 20% on costs in excess of $[60-70]m in order not to prohibit the expansion of the Irish operations.

On the two margins applied the Commission notes the following (paragraph 63):

Second, the margin on branch costs agreed in the 1991 ruling, as described at recital (31), is either 65% or 20% depending on whether the operating costs are below or above USD [60-70] million. According to the excerpt at recital (37), the reduction of the margin after a certain level above USD [60-70] million would have been motivated by employment considerations, which is not a reasoning based on the arm’s length principle. In particular, the two margins of 20% and 65% are relatively far apart and, should the margin of 65% effectively constitute an arm’s length pricing, the margin of 20% would be unlikely to fall within the same range of pricing, while applying the same degree of prudence.

There are other elements as well including transfer pricing for some intellectual property that can be explored in the document.

46 replies on “EC letter to Ireland on Apple State-Aid Case”

The equivalent of a fine is that the document notes:

“The Commission wishes to remind Ireland that Article 108 (3) of the Treaty on the Functioning of the European Union has suspensory effect, and would draw y our attention to Article 14 of Council Regulation (EC) No 659/1999 35 , which provides that all unlawful aid may be recovered from the recipient.”

Ryanair is appealling such an order made a few months ago.

So Ireland may well gain billions after all!

Dear Almighty Apple,

Try as we might to tithe in a manner befitting Your magnificence, the European Emperor is unfortunately putting the kibosh on the whole thing. Please try to understand: we are weak and small and you and the Emperor are so great and powerful. But do also try to look on the bright side. For we hereby give you our solemn oath that the money we’ll be obliged (against every fibre of our being) to claw back from You will be used in a way befitting Your Will: to provide a tax cut to the wealthy elites that are your Chosen People (and best customers).


The Irish Government (on behalf of every previous government back to 1991)

When you say “the amounts involved are relatively small, i.e. not billions,” is this calculated on the differences in tax paid?

The FT again says the amount recouped “would be expected to run to billions of euros, according to people involved in the case. “


1. Do you have any estimate of Apple’s operating expenses in Ireland.

2. Can we therefore work out the portion of Apple’s operating expenses over and above $70m per annum, that should have been at a 65% rate to imply the operating profit of Irish operations.

3. You have asserted the amount will not comprises billions of euro. This clearly contradicts the Financial Times, and indeed today’s Independent. Do you have any evidence to back up this claim?

This is the wake up call we need.
We couldn’t really rely on this tax loophole thing forever. This is a problem for us and will hamper inward investment and possibly knock a fair chunk off our GDP.
If I’m over-reacting would be very happy to be corrected.
We do have strengths still though. We are at peace, we are a natural conduit between Europe and the US, there are only 5 million of us.
Would be very interesting to see the view on German welfare subsidising their industrial giants by part paying wages – is that not also a form of state aid!

Indeed, yesterday’s blog from Seamus asserted

» there are no “fines” in state-aid cases

PAGE 20: “The Commission wishes to remind Ireland that Article 108 (3) of the Treaty on the Functioning of the European Union has suspensory effect, and would draw y our attention to Article 14 of Council Regulation (EC) No 659/1999 35 , which provides that all unlawful aid may be recovered from the recipient.”

» the case does not involve “billions of euros” – ?

» there are no “preliminary findings”

PAGE 20 “the Commission’s preliminary view is that the tax ruling of 1990 (effectively agreed in 1991) and of 2007 in favour of the Apple group constitute State aid according to Article 107(1) TFEU.

» there is no “rate of less than 2 per cent”

Surely its time that everyone move on from the pointless insistence we have a 12.5% for everyone, and accept effective rates were far lower?


“Would be very interesting to see the view on German welfare subsidising their industrial giants by part paying wages – is that not also a form of state aid!”

Oh, you mean die ArbeitsBrücke?

The FT believes the refund will run to billions of dollars:

In a highly critical 21-page decision detailing evidence from its initial probe, the European Commission argues that Ireland gave sustained state support to Apple that may need to be recouped – a penalty that would be expected to run to billions of euros, according to people involved in the case.

If Apple does end up redoing its irish taxes to pay more for past years, given all our double taxation agreements, which other tax jurisdiction gets less?

Even to someone unversed in the intricacies of EU competition law, there are a number of elements that stand out.

The Commission’s entire approach is based on Article 107(1) TFEU dealing with State Aids.

“(46) According to Article 107(1) TFEU, any aid granted by a Member State or
through State resources in any form whatsoever which distorts or threatens to
distort competition by favouring certain undertakings or the provision of certain
goods shall be incompatible with the common market, in so far as it affects trade between Member States.”

The cumulative conditions are;

“(47) The qualification of a measure as aid within the meaning of Article 107(1)
therefore requires the following cumulative conditions to be met: (i) the measure must be imputable to the State and financed through State resources; (ii) it must confer an advantage on its recipient; (iii) that advantage must be selective; and (iv) the measure must distort or threaten to distort competition and have the potential to affect trade between Member States.”

The Commission’s letter itself identifies the “main question”

(48) The main question in the present case is whether the rulings confer a selective advantage upon Apple in so far as it results in a lowering of its tax liability in Ireland. If the existence of a selective advantage can be shown, the presence of the other two conditions for a finding of State aid under Article 107(1) TFEU is relatively straightforward.

The conclusion on the core issue of “selective advantage” is;

“(53) Accordingly, rulings should not have the effect of granting the undertakings concerned lower taxation than other undertakings in a similar legal and factual situation. Tax authorities, by accepting that multinational companies depart from market conditions in setting the commercial conditions of intra-group transactions through a discretionary practice of tax rulings, may renounce taxable revenues in their jurisdiction and thereby forego State resources, in particular when accepting commercial conditions which depart from conditions prevailing between prudent independent operators.”

Nothing, it is clear, has yet been decided. If the eventual conclusion is that Ireland is entitled to tax the major share of the profits of Apple Inc., and that unclaimed tax has to be recouped from the company because of selective treatment, the implications would be bizarre.

Enda Kenny, taoiseach, May 2013 on Apple & Tax: 1) “Ireland does not, let me repeat, does not do special tax deals with companies” 2) “There is no possibility of individual special tax deals.”

May 2013: Richard Bruton, enterprise minister: “Tax has always been an element of the Irish offering, and this will continue to be so, but what you have to avoid is what is known as harmful tax competition. We scrupulously avoid that.”

June 2014: Richard Bruton: “The government is absolutely clear: talk of Ireland being a tax haven is wrong. There are no special deals in Ireland.”

July 2014: Enda Kenny: “We’re very clear in our strong and robust defence of the intention of the Commission to carry out an investigation. That’s about a specific technical issue – about a specific company. It is nothing to do with the rate of corporate tax. We’ve made that perfectly clear.”


And the point is that it was a little foolish to be so emphatic when Apple employees under oath, had told investigators for the US Senate Permanent Subcommittee on Investigations that deals were done in the early 1990s and in 2007 when it invoked the stateless tax residency position. 😯

As regards the liability, a problem arises as the main Irish company Apple Operations International was switched from being tax resident to having no tax jurisdiction.

So let me get this right… back in July and October of last year, Ireland responded to a Commission request by handing over a range of material. And in that material was the Revenue note from which Almunia quotes so lovingly beginning at page 10 of his letter. And despite having handed over that smoking gun, Ireland’s government doesn’t seem to have prepared defences in depth for the arrival of the letter and the subsequent headlines around the world? Did no-one expect the Spanish Inquisition, not even when it warned it was on its way and boasted of its fear, surprise and ruthless efficiency?

We’re used to the Irish state rolling over and playing dead when confronted by European institutions. But I’d have thought that Revenue and Finance would at least put on their game face to try and protect a core pillar of the state’s FDI offering (Google not being here for the weather and all that). At a minimum, I’d have expected Ireland’s response to be monitored closely, at something closer than arm’s length (see what I did there?), by the captains of the transfer pricing industry.
Instead, and without the involvement of any whistleblower types, Ireland has served up to Almunia the internal Revenue meeting notes with Apple on how it would nod through fantasy transfer pricing to reach a mutually acceptable tax payment. The next time I shake hands with someone from Official Ireland, I’ll check if they have a little dotted line across their wrists and a caption ‘cut here’.

Anyone want to run a book on how long it will take before spending plans are debated for any possible Apple tax windfall. Who will get there first, IBEC (tax cuts), PS unions (payroll), politicians (whatever was most popular at the last focus group).

I don’t why anybody would pay the slightest attention to an intellectually, blatantly partisan and dishonest European Commission.

This same commission ruled that the ‘bail-out’ of the Irish banks by Irish citizens did not contravene State-aid rules and now wants the same banks to be re-privatised without any attaching liability to the State.
[Guess whose interests the Commission serves with those kind of decisions]

A bunch of bureaucratic, politically motivated hypocrites.

That said, it is times for Ireland to realign its industrial policy, starting with cramming down on imports and consumption, through the imposition of higher / luxury VAT rates.

Ireland needs to stop rolling over, and listening to politicos, advisors and negotiators that always have one eye (or maybe two, even three) on that lucrative EU job.

@ MH

And the point for me from your comments is that you are jumping to conclusions.

One firm conclusion that can be drawn, even at this stage, however, is that the Commission is operating from a very narrow legal ledge in the Irish case. Whether it is wider in the case of the Netherlands and Luxembourg is a question probably worth looking into. (At least, the RTE midday news coverage has caught up with the core issue of “selective treatment”).

On the issue of residency, cf. the comment by Yields or Bust on the other thread.

That should have read ‘without any attaching liability to the benefit of the State.’
They want capital to escape Scot-free, leaving the debts to the lumpen citizenry.

@ Kevin Ryan

Are you suggesting that the government should behave dishonestly and refuse to abide by its legal obligations under the EU treaties?


I’m not jumping to conclusions on the key issue of state aid as per the rules and so on.

However, it would be ridiculous to argue on the evidence presented that there are no special tax deals made and on this issue no conclusion should be reached for up to 2 years.

The evidence today corroborates what Apple staff said.

Let’s not get pedantic about the word special – my assumption is that some other big companies have also special arrangements that are not generally available.

Again as regards AOI, it was paying taxes in Ireland until 2006, just like Microsoft Ireland Operations (MIO).

Most US affiliates in Ireland are effectively managed from the US whether they are tax resident or not – decisions on the destination of output are not generally made in Ireland and a local general manager has to get clearance on any significant decision.

I have worked in one of them.

@ MH

If you will forgive me for saying so, you are failing to stick to the point except in relation to one contradictory comment viz. that similar deals were also done with other companies.

If they were similar, surely then the Commission will find it difficult to prove that in the case of Apple, the deal was selective? (Binding rules, whether at an EU or international level, on transfer pricing do not exist, as far as I can see, so it is equally difficult to see how any company, anywhere, could be in breach of them other than in the context of rules established nationally over which only the nation concerned has jurisdiction).

cf. “Accordingly, rulings should not have the effect of granting the undertakings concerned lower taxation than other undertakings in a similar legal and factual situation.”

In fact, although I am not a lawyer, I find it hard to see how the point can be established at all without a wider study by the Commission.

This saga has a long way to run. It is the wider message being conveyed that is the real issue; a head of steam is building up in the countries suffering from tax erosion as a result of the imaginative tax planning of US MNCs. The Commission has had many a battle with said MNCs and its record before the ECJ is very mixed.


Not quite. I’m suggesting that if one is going to have a national strategy of facilitating aggressive transfer pricing, merrily ignoring the non-arms length basis of what’s booked by the multinationals one hosts, it’s unwise to have one’s tax authority take notes along the way, ready for the day of the Commission request.

And I suggest it’s especially unwise, having handed over the smoking gun, to carry on with pro-forma declarations of innocence and other bluster.

How can Apple’s treatment in Ireland be anti-competitive if other companies were offered similar treatment? Also my memories of the 1980’s and 90’s is of regions like Brussels attracting MNC HQ and back-office operations by offering to tax them on a miniscule cost plus basis in addition to tax free income for relocated executives.
How about anti-competitive state aid for local heroes such as state owned airlines and car manufacturers in other EU states?
Looks to me as if Ireland is being singled out for special treatment. I wonder why.


You possibly know the rules backwards and the Dept of Finance wishes to say nothing for another 2 years: “As this is an ongoing legal process, Ireland will not be commenting further on any individual aspects of this case.”

The evidence today corroborates what Apple staff said about tax deals.

Deal with that specific point.

That is the focus in many places – it doesn’t mean that the case is finalised.

Brussels criticises Apple’s Irish tax deals – FT

EU: Apple, Fiat Tax Deals Broke Rules – WSJ

EU sets out case against Apple tax deals – Deutsche Welle

Ireland’s Tax Deals for Apple Prompt Warning From European Commission – New York Times

EU to decry Apple’s Irish tax deal – BBC News

Apple’s Irish tax deals ‘constituted State aid’ – RTE

EU Probe Slams Ireland Over Apple Tax Deals – Sky News

Not great PR.

“The problem with the low rate of corporation tax in the Republic Ireland, is actually that it wasn’t that it was just a low rate, it was that businesses weren’t even paying that rate,” David Cameron told UTV in a sit-down interview last night.
“There is the so-called Double Irish, the parsing of profits through other low-tax or no-tax regimes. That is now being cracked down on and about time too,” he emphasised……

…..Responding to Cameron’s comments [* with absolutely no hint of irony], McGrath said the UK “want our jobs and they want our investment”.
They were absolutely unfriendly comments and they certainly weren’t comments you expect from a neighbouring country but the reality is that the UK is in direct comp with Ireland for multinational investment.

* this observation not in the article–finance.html#ONmzXKf

@ Kevin Ryan

I thought we had had our fill of “undocumented” decisions. Do you expect any public servant with an ounce of integrity to participate in what you suggest?

As to the nature of the decisions taken, you may have your personal view but that is all that it is. How the issue of transfer pricing is handled is a matter for national not EU authorities. The point at issue is that of selective – i.e. discriminatory – treatment, the only one, that can be addressed – if my reading of the Commission’s own communication is correct – under the existing treaty based competition rules.

@ MH

I have long ago ceased to take media coverage at face value. As I pointed out above, the EU is a union of law and observance of it is the glue that keeps the entire edifice together. All countries play political games. It is the nature of the undertaking. But what comes out in the wash in legal terms at the end of the day is what matters. All the players have ranks of suitably qualified expertise to fight the good fight for them. Incidentally, I heard one of them answer the question I raised earlier about the need for a wider study. It seems that the Commission has examined “hundreds of files” and could only come up with Apple.

@Hennigan & Coffey

Ta. (again)


Good Newz from Minister Howlin

Appointments to State Boards …. will be improved.

This was promised by Richard Bruton before last election ….. a review by Mary Regan & Irish Examiner [which I posted some time back] did not make for positive newz on Goverance …. (inc. Minister Howlin) …. Minister Varadkar came out best ….

Well – once again we have to thank Picasso, Kandinski et al. & The Irish Museum of Modern Art (IMMA) for this unexpected announcement …. time will tell!

Governance pre-crash = Governance ongoing-crash


@ JR

I suggest that you read paragraphs 73 to 79 of the Commission’s letter. You may be fairly certain that no member state launches a general programme of state aid under the exceptions allowed under Article 107(1) without first clearing what it is doing with the Commission, Ireland being no exception.


In keeping with The Aesthetic Turn in Irish Political Economy …..

The Apple/EU affair is probably best viewed as … Theatre ….. with numerous ‘asides’ from political luminaries – numerous op-eds – numerous TV grunts from members of Congress, numerous rubbing of hands from legal eagles – all full of feigned ‘passionate intensity’ … to increase the chances of An Oscar it becomes a must to take the ECB to the ECJ and to put out an APB for Herr Geithner and Herr Trichet ….

The Citizenry is being farmed – let’s give them Theatre …

And nothing, absolutely nothing, will happen ….

Should the govt have failed to honour its obligations etc?

It should adopt the same standards as any other country which is to ignore what does not suit. I am amazed that DOF disclosed as much as it did.

@ Thomas Paine

“How can Apple’s treatment in Ireland be anti-competitive if other companies were offered similar treatment?”

That is a very poor argument. The more revenue an MNC has, the more bespoke its tax arrangements. The Big 4 will open any door and set up any loophole. SME’s have no chance.

The last surviving edifice of the PD revolution may well turn out to be deregulated taxis. Of course Harney made a right job of the health service.


If other countries did what you say they do, the EU would have collapsed long ago. Trying to play any game without a referee, the Commission in this instance, and without ultimate recourse to the video replay (the ECJ), gets you precisely this result.

@ MH

On press coverage, this is probably the best that I have seen (largely because Seamus Coffey is quoted).

This contribution takes the biscuit!

“Apple’s Irish tax rate has no rational basis; it was determined by what Apple was ‘prepared to accept’ – with the threat that it would cut jobs in Ireland if it didn’t get its way. That low tax rate came on top of Apple’s ploy of saying its three main Irish subsidiaries are not tax resident anywhere. Hopefully this finding will help persuade Congress that we should close the loopholes in our tax code that allow Apple-type gimmicks whose sole purpose is to avoid paying US taxes.”

To imply that the EU is a community governed by laws is a massive distortion. It is ruled by the self interest of the big nations.

@Tull, Anyone

What, of any substance, will the Corporate funded members of the U.S. Congress DO?

Too difficult?

OK. Anyone name a single member of the U.S. Congress who is consistently prepared to place the interests of the lumpen American Citizenry ahead of the interests of either The Corporates or AIPAC?

Still too difficult?

OK. Hint! What are the odds of the neo-kons bom*ing Cork seeking ‘regime change’?


@Irish Museum of Modern Art

The Board:

The members of the Board and the Chairperson are artists and other people with an active interest and/or expertise in modern and contemporary art. They are appointed in their capacity as individuals.

The following is a list of IMMA’s current board members:
• Eoin McGonigal, SC, Chairperson, appointed in February 2000 and reappointed in June 2005 and in July 2010. Appointed Chairperson in December 2001.
• Jane Dillon Byrne, appointed May 2014.
• Brendan Flynn, appointed in June 2005 and reappointed in January 2011.
• Rowan Gillespie, appointed in January 2011.
• Emma Goltz, Collector, appointed in November 2013.
• Mary McCarthy, appointed in January 2011.
• Dr Eimear O’Connor, appointed in February 2011.
• Julie O’Neill, appointed in February 2010.
• Brian Ranalow, appointed in June 2005 and reappointed in January 2011.


To imply that the EU is a community governed by laws is a massive distortion. It is ruled by the self interest of the big nations.

That the EU is a creature of the Deutsche bloc and to a much lesser extent France is undoubtedly true but it is a mistake to think that Germany or France have been breaking the law. The way that power rolls over democracy and subverts international institutions is both subtler and more corrosive than merely ignoring the law because it undermines the very idea of legitimacy and alienates and enervates those with less power. Laws always embody power relations but they also enforce power relations, Germany had the political power to force the fiscal compact on the EU but the fiscal compact also made Germany more powerful by weakening its political opponents.

So the power of Germany, the power of the financial sector, is the ability to write laws they want and interpret old laws to their maximum benefit. The Alice in Wonderland nature[*1] of the ECB’s 2% inflation target , the shifting justifications for the Irish bail out of the EU financial sector and the imposition of the fiscal compact are all terrific examples of just how meaningless the rule of law is.

There is an old long (2012) post at “Cunning Hired Knaves” about the nature of kleptocracy in Ireland which is now relevant again thanks to Irish Water and it covers all this ground and more:

The Great Theft Movement: Ireland as Kleptocracy

[1] The Eurozone inflation target is close to but under 2%, 0.5% seems close to me, 0.1% is not close but over the long term the target will still be met. Now its at the stage where Poland’s finance minister (not even in the Euro) suggests it may be necessary to change the taget because deflation is not so bad anyway.


If Ireland’s Revenue officers are too principled not to keep notes of how they facilitate dishonest aggressive transfer pricing, they probably shouldn’t – y’know – facilitate the dishonest aggressive transfer pricing. It’s no way to do dodgy business.

All that said, I appreciate taxation is a national competence. The EU is in a weak position to crack down. Formal investigations are an unweildy tool, and can only lift the lid on what happened in the specific circumstances investigated. For Ireland, an unwelcome result in respect of Apple is no guarantee of a similar impact for other companies, either in respect of the past or the future. The EU Commission would have to make an awfully big project of that, and Ireland’s appetite for fulsome cooperation might then be tested.

@ Shay

Martin Wolf from earlier last month . DOCM might be able to spin it for you but it looks very poor.

“In the second quarter of this year, real domestic demand in the eurozone was 5 per cent lower than in the first quarter of 2008. The eurozone’s unemployment rate has risen by just under 5 percentage points since 2008. In the year to July 2014, consumer price inflation in the eurozone was 0.4 per cent. From these telling facts one can conclude three simple things: the eurozone is in a depression; lack of demand has played a crucial role; and the European Central Bank has failed to deliver on its own price-stability target. This is not just sad. It is dangerous. It is folly to assume continued stability if economic performance does not improve…..
This is not just a matter of economics. The capacity of the peoples of member states to tolerate high unemployment and deep slumps has been impressive. But it cannot be unlimited. If that is what the powers that be continue to advocate, the result will probably be a populist reaction. “

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