There is an old Irish folk tale about a pot of gold at the end of the rainbow. A number of countries are hoping there’s some truth in the tale after the European Commission (EC) ruled in August that Ireland must recover €13bn in “illegal state aid” to Apple – and that other European countries might have a claim to a share of the pot. 

In her ruling, European competition commissioner Margrethe Vestager contended that Ireland had granted “selective treatment” to Apple through advance tax rulings that “substantially and artificially” reduced the company’s tax burden in Ireland compared with other companies.  


But another part of her statement had other countries hearing the clink of euros landing in their coffers. “The amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the profits recorded by [Irish subsidiaries] Apple Sales International and Apple Operations Europe for this period,” she said. “This could be the case if they consider, in view of the information revealed through the EC's investigation, that Apple’s commercial risks, sales and other activities should have been recorded in their jurisdictions.” 

Prospective share

Both Ireland and Apple immediately announced that they would appeal the ruling. But Spain, Austria, France and Italy are among the countries eyeing Ireland’s potential windfall. “If it’s legally accurate, you can be sure that as minister of finance, I will take it,” says Austria's Hans Joerg Schelling. "We Austrians are looking at it intensively.”

Legal experts, however, say the prospect of sudden riches for these countries could be a mirage. For a start, the EC has not yet made the full decision public. Whether there was, in fact, a breach of state aid rules is still in dispute. More importantly, some say the legal basis for such claims is weak because of the way Apple had structured its sales in Europe. 

As the EC recorded: “Apple Sales International is responsible for buying Apple products from equipment manufacturers around the world and selling these products in Europe (as well as in the Middle East, Africa and India). Apple set up its sales operations in Europe in such a way that customers were contractually buying products from Apple Sales International in Ireland rather than from the shops that physically sold the products to customers. In this way Apple recorded all sales, and the profits stemming from these sales, directly in Ireland.”

Reuven S Avi-Yonah, a professor of tax law at the University of Michigan and member of the steering group for the OECD’s International Network for Tax Research, questions whether claims on Ireland’s tax windfall would succeed, since Apple products were not disseminated or sold through local distributors but directly from Apple’s Irish subsidiary. “It is hard for countries, under existing tax rules, to collect tax in situations where the relevant low-tax jurisdiction doesn’t have any kind of office or physical presence in the country. Spain cannot tax the Irish company directly if the company has no presence in Spain,” he says. 

The arbitrary nature of potential third-country claims is a concern for Carol Doran Klein, vice-president and international tax counsel for the US Council for International Business, a private membership organisation. “If I am a country and I want to tax something, I have to have a rule in place that permits me to tax it,” says Ms Klein. “There has to be a basis for collecting the tax. Countries should not, after the fact, be making up rules that permit them to tax something that was not taxable to begin with.” 

She also views the EC’s actions as an intrusion on member states’ sovereign taxing authority, creating uncertainty as to which government is in charge of tax policy. 

Uncharted territory

Then there is the question of how countries would actually go about collecting the sums they believe would be due. No one knows because this approach has never been taken before, says Lynne Oats, deputy director of the University of Exeter’s Tax Administration Research Centre. 

Ms Oats speculates that countries would have to issue revised assessments of their tax claims against Apple. “However, in most tax systems, once the tax liability has been agreed and paid, it is not usually reopened unless there’s some sort of evidence of fraud,” she says.

She adds that it would also depend on whether a government even had the power to reopen a case, given that many have a time limit on doing so. There would also be the matter of sorting out how much each country was actually entitled to, and disputes would likely be settled through administrative mechanisms.

Apple is not the only multinational under scrutiny as a recipient of illegal state aid. The EC is investigating Luxembourg’s tax arrangements with Fiat Finance and Trade, McDonald’s and Amazon, as well as the Netherlands’ arrangements with Starbucks. Still, Ms Oats believes the Apple-Ireland situation is unique. “There will be other state aid cases, but not another where the EU invites other countries to have a stab at this pot of money,” she says.

Given the limitations of tax law, the EC may not have been unwise in using state aid as the basis for its case, according to Mr Avi-Yonah. “It is an egregious situation that something should be done about,” he says.

Anti-avoidance measures

Indeed, anti-tax avoidance efforts are proliferating at national and international levels. The UK’s Diverted Profits Tax (DPT, also dubbed the 'Google tax'), which came into effect in April 2015, aims to combat “contrived arrangements” designed by multinationals to shift profits out of the UK to low-tax jurisdictions. 

The OECD’s 15-point action plan to end tax base erosion and profit shifting has been adopted by many countries. In October 2016, the EU proposed an “improved and re-launched” version of the common consolidated corporate tax base (CCCTB), mandatory for the biggest multinationals operating in the EU. Under the CCCTB, companies would be able to use a single set of rules to file one tax return for all their EU activities, but also face “robust anti-abuse measures”. 

Meanwhile, there is some worry that the proliferation of new anti-evasion protocols could increase uncertainty for business or produce conflicting outcomes. For example, says Ms Oats: “There’s some concern that the EU’s state aid approach is undermining the work of the OECD.”

The outcome of the appeal by Apple and Ireland against the EC decision may shed some light on a murky area. And for those countries hoping to cash in if Ireland loses its case, the pot of gold remains a shimmering hope.