Apple has warned shareholders it may have to pay a material amount of back-tax to Ireland if the European Commission's inquiry into its arrangements in the Republic finds they constituted state aid.
The company has further warned shareholders that a ruling against Ireland could mean the company would have to pay more tax on its profits in future years.
It is normal for public companies in the US to warn shareholders of so-called “risk factors” that could have a material effect on their results.
No figures for the possible size of any such repercussions are given. However the latest annual return for Apple, filed recently with the Securities and Exchange Commission in Washington, DC, makes clear the enormous role played by Ireland in the multinational's global structures.
Subsidiaries
The company has accumulated almost $70 billion in profits from non-US operations that have not been subjected to US corporation tax and which have largely been booked by Apple subsidiaries “organised in Ireland”.
These are understood to include the two so-called “stateless” Apple subsidiaries that have registered addresses in Cork but which up until recently have not been tax resident anywhere.
It is Ireland’s tax arrangements with these companies that are the focus of the state aid inquiry being conducted by the commission. Ireland is contesting its charge that agreements arrived at by the companies and the Revenue Commissioners, in 1991 and 2007, constituted state aid. A request yesterday for a comment from Apple met with no response.
In its annual report Apple said its effective tax rate and other aspects of its tax regime could be subject to significant change because of developments concerning tax laws and their interpretation. In the latter regard it mentioned only two jurisdictions, the US and Ireland.
"For example, in June 2014 the European Commission opened a formal investigation to examine whether decisions by the tax authorities in Ireland with regard to the corporate income tax to be paid by two of the company's Irish subsidiaries comply with European Union rules on state aid," the filing said.
“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.”
“The European Commission could also require Ireland to recover from the company past taxes reflective of the disallowed state aid.”
Irish corporation tax
The subsidiaries are Apple Sales International (ASI) and Apple Operations Europe. Despite having sales that totalled more than $150 billion in the four years to 2012 they have paid less than €10 million a year in Irish corporation tax.
In a letter to the Irish Government in June, commissioner Joaquín Almunia quoted figures from a US senate inquiry into Apple's tax affairs which found ASI's pretax profits in the three years from 2009 were, respectively $4 billion, $12.1 billion and $22 billion.
However, the Irish authorities had told the commission the company’s taxable profits in Ireland had been between €30 million to €40 million for 2009 and 2010; between €50 million and €60 million in 2011; and between €40 million and €50 million in 2012.
In each year the company had paid between €1 million and €10 million in Irish corporation tax, the letter said.
Ireland’s arrangement with the companies involved their taxable profits attributable to Ireland being a percentage of their operational expenses. Apart from these profits, the companies were not tax resident anywhere.
