Ireland expected to recover disputed taxes from Apple in Q1 2018

Progress has been made to recover up to €13 billion in disputed taxes from Apple, with Ireland and the US tech giant reaching an agreement over the terms of the escrow account where the money will be transferred.

The deadline for Ireland to implement the European Commission's ruling to collect the back taxes had been January 3, 2017, the commission said in October, adding that it would be taking Ireland to the European Court of Justice for failure to collect the taxes despite considerable time passing.

While the case is still pending before the European Court of Justice, Ireland will comply with its obligation to recover the back taxes and keep the money in an account managed by a third party, Irish Finance Minister Paschal Donohoe said on Monday, ahead of a meeting with European Competition Commissioner Margrethe Vestager.

"We have now reached agreement with Apple in relation to the principles for the operation of the escrow fund," Donohoe said, adding that the tendering process to decide who will oversee and manage the account is expected to be completed in January.

Donohoe said the money is expected to be transferred during the first quarter of 2018, although late last month it was said the collection process would begin in the "coming weeks".

The European Commission decided last year that Ireland's tax benefits to the tech giant were illegal under EU rules because they allowed Apple to pay substantially less tax than other businesses might.

After a two-year investigation, the European Commission declared in August 2016 that tax arrangements between Apple and Ireland, originally established in 1991, allowed the company to pay "substantially less tax" than rival companies, and were therefore illegal under state aid rules.

The commission concluded that Apple had used two shell companies incorporated in Ireland so that it could report its Europe-wide profits at effective rates significantly below 1 percent, at one point paying a tax rate of just 0.005 percent.

As a result, Ireland was ordered to recover €13 billion in back taxes from Apple.

Donohoe previously called the commission's ruling unjustified, with both Ireland and Apple said to still be in the process of appealing the original ruling.

In its legal submission against the EU's ruling, the Irish Finance Ministry claimed that it is not only legal to levy far less tax on profits imposed by competitors, but that it's the whole point of Ireland's sales pitch to foreign investors.

Early last month, it was reported that Apple had revamped its overseas subsidiaries to take advantage of tax loopholes on the European island of Jersey after a crackdown on Ireland's loose rules began in 2013, according to secret documents.

Apple moved the tax home of two Irish subsidiaries to Jersey, a self-governing UK crown dependency in the English Channel, and also made Ireland the tax home of a different European subsidiary.

An Apple spokesperson told The New York Times that the company told regulators in the US and European Commission of the reorganisation of its Irish subsidiaries at the end of 2014, and said the moves did not reduce its tax payments in any country.

Along with Apple, companies such as Amazon, Facebook, and Google have come under scrutiny in the last few years for allegedly paying too little tax by establishing shell companies in low or no-tax countries such as Luxembourg and Ireland.

Last month, the European Commission launched a public consultation to help it decide on a fairer and "growth-friendly" tax regime for multinational technology companies operating in the European Union.

The commission said it wanted binding legislative proposals for "unitary tax" that would be levied on a share of tech companies' global profits, divided up between the EU countries where they operate.

The rationale for this is that it could remove the incentive for multinationals to set up their headquarters or shell companies in low- or no-tax jurisdictions.

"The current tax framework does not fit with modern realities. It was designed in a pre-computer age and cannot capture activities which are increasingly based on intangible assets and data," the European Commission said last month.

As a result, there is the risk of shrinking tax bases for member states, competitive distortions for businesses, and obstacles for innovative companies.

The commission said it was also contemplating changing the principle of corporate establishment, so that companies could be taxed when they have a "digital" presence in a country. In the short term, EU states could impose a tax on revenues from "digital activities" or services, such as the sale of online ads. They could also withhold tax on digital payments or a "digital transaction tax" levied on companies selling consumers' personal data.

The European Commission also opened its investigation into whether a UK tax exemption for multinationals amounts to a breach of EU state aid rules.

The UK government introduced an exemption to its Controlled Foreign Company (CFC) rules, which was created to stop companies from shifting untaxed profits to low- or no-tax jurisdictions.

The CFC rules allow UK tax authorities to reallocate all profits artificially shifted to an offshore subsidiary back to the UK parent company. However, the Group Financing Exemption that was introduced means certain financing income received by a company's offshore subsidiary will not be reallocated to the UK.

"Thus, a multinational active in the UK can provide financing to a foreign group company via an offshore subsidiary," the European Commission said in an announcement.

"Due to the exemption, it pays little or even no tax on the profits from these transactions, because: The offshore subsidiary pays little or no tax on the financing income in the country where it is based; and the offshore subsidiary's financing income is also not (or only partially) reallocated to the UK for taxation due to the exemption."

In July, the European Parliament passed a directive requiring big multinationals to report tax and financial data separately in all countries where they operate in a bid to tackle tax avoidance and profit shifting to countries with lower tax rates.

However, the requirements need approval from the EU member states, after which they would need to be instituted into national law in each country within a year.

EU countries lose between €50 billion and €70 billion in revenues every year because of tax avoidance, VP of the European Commission Valdis Dombrovskis told lawmakers previously.

The new measure would require firms with activities in the EU and an annual turnover of at least €750 million to disclose data such as profits, revenues, taxes paid, and number of employees for each country where they operate.

Currently, multinationals disclose their operations in one consolidated report.

With AAP

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