An Overview of the Apple Tax Ruling

An Overview of the Apple Tax Ruling

Ireland Lodges Appeal

Ireland lodged its appeal on 9 November 2016 against the recent European Commission Ruling which found that Ireland had granted selective tax treatment to Apple.  This is not the first or only Commission ruling in respect of State tax rulings.  Although taxation is a member for member states generally, member states cannot confer a selective benefit through the taxation system or otherwise as an inducement to set up or continue business in the state. This is known as state aid and is unlawful under the EU Treaties

On the 30 August 2016 the European Commission stated the selective tax treatment of Apple was illegal under EU State Aid rules because it gave Apple a significant advantage over other businesses that are subject to national taxation rules.  The Commission ordered Ireland to recover the unpaid taxes in Ireland for the years 2003 to 2014 of up to €13 Billion, plus interest, which it has deemed illegal state aid for the ten year period preceding the Commissions first request for information in 2013.

The Commission said the tax rulings issued by Ireland endorsed an artificial internal allocation of profits which had no factual or economic justification.

Apple in Ireland

To understand the Apple Corporate Structure it is necessary to give a short overview on how companies are taxed in Ireland and in the US.

Irish Company Tax Rules

Ireland determines tax residence for companies based on where the company’s central management and control is located.  Where an entity operates a branch in Ireland that is not Irish tax resident (that is not controlled or manged here) then that enterprise is only taxable on the amount of income earned by its Irish branch.

US Company Tax Rules

Unlike Ireland, the US determines the tax residence for companies based on where they are incorporated.

Apple Corporate Structure in Ireland 


Apple has a number of companies in Ireland but the Commission investigation focused on Apple Operations Europe (AOE), Apple Sales International (ASI) and their parent company Apple Operations (Head Office).  Because all three companies were incorporated in Ireland they were not subject to US corporate taxation.  But, because all three companies were not managed or controlled in Ireland, they were not Irish tax resident either.

Background of Irish Tax Ruling

Although the Irish incorporated companies were not strictly Irish tax resident they did have manufacturing elements in Ireland that would be subject to Irish taxation.

From the information publically available it appears that in 1990 a meeting took place between the tax advisors representing Apple and the Irish Revenue Commissioners. It was proposed by Apple’s representatives, and accepted by Revenue, that a percentage of Irish profits of AOE and ASI would be taxable based on a formula relating to the manufacturing activities in the Irish entities.  The information available sets out that the tax advisors viewed the profit at that time in Apple’s Irish branch (Apple Operations Europe) was derived from three sources- technology, marketing and manufacturing.  The tax advisor advised that only the manufacturing element related to the Irish Branch, and only that element, should be taxable in Ireland.

It is recorded the tax advisor stated that assuming Apple were to make a profit of £100 million it would be prepared to accept a profit of between $30-$40 would be taxable and that a formula could be worked out based on the underlying manufacturing element which would be taxable which took account of capital allowances and operating costs.

It is suggested that the representative of the Irish Revenue asked the tax advisor if there was any basis for the figure of $30-$40 million, and the tax advisor accepted there was no scientific basis for the figure.  However, the figure was of such magnitude that the tax advisor hoped it would be seen as a bona-fide proposal.

In 1991 the Revenue Commissioners issue a tax ruling setting out the formula

In 2007 the Revenue Commissioners issued a second tax ruling setting out a revised formula which replaced the first ruling.

Effect of the Rulings

The effect of the tax ruling appears to be that the taxable profits of AOE and ASI were calculated with regard to their manufacturing operating costs and not the global turnover which was remitted through them to the ultimate parent.  The rate to be applied was adjusted depending on the levels of operating costs.  The Commission asserts that the profits to be allocated between group entities must be on an arm’s length basis which must be commercially justified.  They do not accept that this structure had any factual or economic justification.  Accordingly, the Commission argue that Ireland gave illegal tax benefits to Apple of €13 Billion.


Apple and the Irish Government have defended the arrangement and denied it was unlawful. Ireland has now formally appealed the decision.  Such an appeal is likely to take years to be heard.  Where a member state decides to appeal a Commission decision it must still recover the illegal state aid but could, for example, place the recovered amount in an escrow account pending the outcome of the EU court procedures.

The Commission is not challenging the Irish tax rates, the basis of our taxation system nor the ability of Revenue to raise tax rulings.  The Commission has raised concerns in relation to these historical rulings which deserve to be taken seriously.

For further information on the above, please contact Setanta Landers at