Amid EU probe, Apple flags Irish tax impact to investors

Apple has warned investors that its results may be adversely impacted by changes to tax legislation in Ireland.
Written by Liam Tung, Contributing Writer

Apple has told investors that its operating results may be "adversely affected" by changes that may result from a European Commission probe into its tax affairs in Ireland.

Apple warned investors in its annual 10-K filing to the Securities and Exchange Commission, published this week, that its financial condition may take a hit depending on the outcome of the EC's investigation into its tax arrangements in Ireland.

"Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change," Apple said, pointing in particular to the US and Ireland.

In June, the EC opened its investigation into two Irish tax rulings in 1991 and 2007 that involved Apple, examining whether they allowed the company to lower its tax rate in the country, with a focus on the transfer pricing methods Apple used between its subsidiaries. Apple is alleged to have been given favourable treatment in exchange for guaranteeing jobs in Ireland.

In September, the EC published a letter to the Irish government from June stating that it was of the view that Ireland's tax rulings constitute state aid of a kind not permitted under European law.

Apple acknowledged the EC's investigation, which examines whether the corporate income tax to be paid by two of its Irish subsidiaries comply with European Union rules on state aid. As the Wall Street Journal noted today, Apple employs 4,000 people in Cork, where its Irish subsidiaries are based and may, according to Heather Self, a tax partner at London law firm Pinsent Masons, be asked to pay the equivalent of $200m in back taxes. 

"If the European Commission were to take a final decision against Ireland, it could require changes to existing tax rulings that, in turn, could increase the Company's taxes in the future," Apple wrote in the SEC filing.

"The European Commission could also require Ireland to recover from the Company past taxes reflective of the disallowed state aid."

Apple CFO Luca Maestri in September said that Apple did not have any special deals that guaranteed local jobs in return for better tax treatment of its Irish subsidiaries.

A US Senate committee last year found Apple had established an offshore subsidiary, Apple Operations International, which from 2009 to 2012 reported net income of $30bn, but which declined to declare any tax residence, filed no corporate income tax return, and paid no corporate income taxes to any national government for five years.

A second Irish affiliate, Apple Sales International, received $74bn in sales income over four years, but due in part to its alleged status as a non-tax resident, paid taxes on only a tiny fraction of that income, the committee said in its report at the time.

Ireland's finance minister Michael Noonan announced earlier this month that the country would phase out corporate tax loopholes that have made it favourable place for tech companies to hold profits in.  

The change will force companies that are registered in Ireland to become tax residents in the country, and will be introduced for new companies from the start of next year, with existing companies given five years' grace.

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