Exposed:
Apple’s golden delicious tax deals
Is Ireland helping Apple pay less than 1% tax in the EU?
European United Left • Nordic Green Left
EUROPEAN PARLIAMENTARY GROUP

1

 CONTENTS:
Summary and key findings         

3

What corporate tax rate is Apple paying today?      

8

Apple’s structure in Ireland post-2014       

24

The enablers: Aspects of Ireland’s tax law that facilitate Apple’s tax avoidance 

34

Appendix           

48

A study carried out for the European United Left/Nordic Green Left, in the European Parliament.
www.guengl.eu
Authors: Martin Brehm Christensen and Emma Clancy
Published 21 June 2018, Brussels.

2

 Summary and key findings
This report was commissioned by GUE/NGL members of the European Parliament’s
TAX3 special committee on tax evasion, tax avoidance and money laundering. It
examines the corporate tax rate paid by Apple globally and in the European Union
(EU) over the period 2015-2017, after it made significant changes to its corporate
structure in 2015. These changes were made in response to the United States (US)
Senate Subcommittee on Investigations examination of Apple’s tax affairs in 2013,
the European Commission’s 2014 investigation into state aid provided by Ireland to
Apple, and the changes to Irish tax residence law ending the ability of companies to
be “stateless” for tax purposes. In addition to estimating the effective corporate tax
rate Apple has paid from 2015-2017, this report also examines the nature of Apple’s
2015 corporate restructure, and the methods it uses to continue to avoid paying tax
today. Lastly, it examines the features of Irish tax law and policy that facilitate Apple’s
ongoing tax avoidance.
Tax rate in the European Union and globally 2015-2017
1) Apple may have paid as little as 0.7% tax in the European Union (EU) from 20152017.
2) Using data from Apple Inc’s 10-K filings to the US Securities and Exchange
Commission, we estimate that as a result of the new Irish structure, and Apple’s
broader global tax structure, Apple’s tax rate for the period 2015-2017 for its non-US
earnings is between 3.7% and 6.2%.
3) Two alternative calculations of the average rate paid on non-US earnings reach
similar results, of between 4.5% and 6.7%, and between 4.7% and 6.9%.
4) Using data from Apple Inc’s 10-K filings to the US Securities and Exchange
Commission, we estimate that Apple has paid corporate tax at a rate of between 1.7%
and 8.8% in the European Union during the period 2015-2017. This estimate assumes
3

 that Apple’s provisions for foreign tax equals money actually transferred to foreign
governments.
5) If we assume the highly likely scenario that Apple’s provisions for foreign tax is
substantially higher than the amount actually transferred to foreign governments, we
estimate that Apple may have paid as little as 0.7% tax in the EU from 2015-2017.
6) Applying the range of estimated tax rates paid in the EU from 2015-2017, we
estimate that Apple has avoided paying between €4 billion and €21 billion in tax to
EU tax collection agencies from 2015-2017.
Apple’s Irish restructure in 2015
7) Apple’s new European tax structure remains shrouded in secrecy, partially due to
a lack of financial transparency in Ireland and Jersey. Most of its financial information
remains secret globally.
8) Apple continues to use Ireland as the centrepiece of its tax avoidance strategy.
Following the US Senate inquiry (2012-2013) and the initiation of the European
Commission’s state aid investigation into Ireland (2014), Apple organised a new
structure in 2015 that included:
• 
• 
• 

The relocation of its non-US sales from ‘nowhere’ to Ireland;
The relocation of much of its intellectual property from ‘nowhere’ to Ireland;
The relocation of its overseas cash to Jersey.

9) As well as relying on the information revealed in the Paradise Papers and Apple’s
statement responding to these revelations, this restructure can be observed in the
macro-economic data of Ireland from 2014-2018, particularly in the first quarter of 2015.
Major changes occurred in Ireland’s GNP, GDP, exports, imports, investment, external
debt and more. Despite the relocation of sales income and intellectual property to
Ireland, there was no observable corresponding increase in corporation tax received
from Apple by Irish Revenue.
4

 10) With the assistance of the Irish government, Apple has successfully created a
structure that has allowed it to gain a tax write-off against almost all of its non-US sales
profits.
Apple is achieving this by using:
• A capital allowance for depreciation of intangible assets at a rate of 100% (this rate
will be capped at 80% from 2017, but the cap will not apply to the intangible assets
brought onshore from 2015-2016, which can still benefit from the 100% rate);
• A massive outflow of capital from its Ireland-based subsidiaries to its Jersey-based
subsidiaries in the form of expenditure on IP and debt;
• Interest deductions of 100% on this intra-group debt;
• Meeting the payment of its cost-sharing agreement with Apple Inc for research and
development by availing of R&D tax credits provided under Ireland’s tax law that allows
Apple and other companies to pay tax on R&D activities at a rate of 3%.
11) The Irish government introduced the 100% rate on capital allowances for
intellectual property (IP) following a recommendation made by the American Chamber
of Commerce in Ireland in 2014.
12) The law governing the use of capital allowances for IP is not subject to Ireland’s
transfer pricing legislation, but it includes a prohibition from being used for tax avoidance
purposes. Apple is potentially breaking Irish law by its restructure and it exploitation
of the capital allowance regime for tax purposes. If the same legal reasoning used in
the European Commission’s state aid ruling on Apple and Ireland is applied, Apple is
in breach of Irish tax law, and owes Irish Revenue at least 2.5 billion additional euros
in unpaid tax annually from the period 2015-2017.
13) The use of this structure has contributed to a significant increase in the amount of
cash Apple is sitting on in offshore tax havens.
5

 Features of Irish tax law that enable Apple’s tax avoidance
14) Apple is unlikely to be the only multinational corporation using this structure, which
is advertised as a typical structure used by large corporations involved in trading in
intellectual property by corporate law firms. We have called it the “Green Jersey” in
reference to the use of the Jersey-based subsidiary by Apple, though it is not strictly
necessary to use an offshore tax haven as Apple has.
15) The essential features of the Green Jersey scheme are:
• It can be used by large multinational corporations engaged in trading IP;
• It has specifically been designed by the Irish government to facilitate near-total tax
avoidance by the same companies who were using the Double Irish tax avoidance
scheme;
• While the Double Irish was characterised by the flow of outbound royalty payments
from Ireland to Irish-registered but offshore-tax resident subsidiaries, this scheme is
characterised by the onshoring of IP and sales profits to Ireland;
• Sales profits are booked in Ireland, but the expenditure the company incurs in the
once-off purchase of the IP license(s) can be written off against the sales profits for
years by using the capital allowance programme for intangible assets;
• It is beneficial for the company to complement the tax write-off by continuing to use
an offshore subsidiary, but not outbound royalty payments to flow to. The role of the
offshore subsidiary is to store cash and provide loans to the Irish subsidiary to fund
the purchase of the IP. The expenditure on the IP is written off, but so too are the
associated interest payments made to the offshore subsidiary, which thus accumulates
more cash that goes untaxed.

6

 16) Many of the features of Irish tax law that were identified as factors facilitating
tax avoidance in the Commission’s state aid ruling remain partially or fully in place
in Ireland. Despite the announced phase-out of the Double Irish scheme, we have
found that the “management and control” provision allowing the creation of Double
Irish structures remains in place through several of Ireland’s tax treaties, including
treaties with states considered to be tax havens.
17) Several other key features of Ireland’s tax regime that were criticised in the context
of the Apple state aid ruling, and which remain fully or partially in place include:
• Ireland’s intellectual property tax regime including R&D credits that are open to
abuse, and the lack of withholding taxes on outbound patent royalty payments;
• The use of private “unlimited liability company” (ULC) status, which exempts
companies from filing financial reports publicly. The fact that Apple, Google and many
others continue to keep their Irish financial information secret is due to a failure by the
Irish government to implement the 2013 EU Accounting Directive, which would require
full public financial statements, until 2017, and even then retaining an exemption from
financial reporting for certain holding companies until 2022;
• Ireland’s one-way transfer pricing laws that examine only the Irish-resident party
involved in a transaction;
• Continued use of Advanced Pricing Agreements and Revenue “opinions”, which
may not be subject to the same requirements on mandatory automatic exchange of
information between EU member states under the third EU Directive on Administrative
Cooperation.

7

 What corporate tax rate is Apple paying today?
A picture of Apple’s corporate structure today according to available data
Apple does not disclose the profits and taxes for the individual countries in which
it operates. With regard to tax payments there is only a single distinction between
the provision for tax in the USA and for “foreign” taxes (i.e. non-US). With regard to
“operating profit” amounts are published only for five overall geographical segments:
the Americas, Europe, Greater China, Japan and Rest of Asia Pacific. Americas
includes both North and South America. Europe includes European countries, as well
as India, the Middle East and Africa.
Looking at the global allocations of profits and sales across these five segments,
profits roughly correspond to the size of net sales (see table 1 for 2017). Japan has
the highest ratio between operating income and sales (0.46). Europe has the lowest
(0.30) and these ratios are largely unchanged over the period 2015-2017.
However, looking at the provisions for income tax, the picture changes radically: there
are only two numbers, one for the USA and another for the rest of the world (in the
rest of this study the latter will be referred to as the “non-US” provision for income tax).
Almost 90% of the total tax provision is allocated to the USA. We may ask why so little
provision for income tax is placed outside the USA when Apple’s own numbers state
that more than half of the sales and operating income is outside the Americas. Where
is this non-US tax paid? Does it correspond to the statutory tax rates in the countries
where Apple operates, and if it doesn’t, how does Apple then organise its business to
facilitate such tax avoidance?

8

 Apple’s global allocation of tax, net sales and operating income 2017

Source: Data for the table has been obtained from Note 10 of Apple Inc. 10-K filings to the US Securities and
Exchange Commission (SEC). http://investor.apple.com/sec.cfm?DocType=&ndq_keyword= accessed June 2018

Apple’s profits invisible in Orbis
database
Source: Tørsløv, T, Ludvig Wier
and Gabriel Zucman (2018).
‘The Missing Wealth of Nations’,
http://gabriel-zucman.eu/files/
TWZ2018.pdf

9

 According to the world’s largest business database, Orbis, Apple had 241 subsidiaries
in June 2018. It is plausible that Apple has additional subsidiaries for which Orbis
has not succeeded in obtaining any information. Moreover, Orbis holds financial
information for only 37 out of Apple’s 241 subsidiaries. That means that about 80% of
Apple subsidiaries disclose no financial information.
Apple in Jersey and Cayman Islands
The Paradise Papers leak revealed that Jersey was to play a significant role in Apple’s
new Irish tax setup starting in December 2014. However, Orbis shows no Apple
presence in Jersey, and searching for Apple in Jersey’s company register also proved
fruitless. Thus, it is not possible for the public and investors to know exactly what
Apple’s subsidiaries are engaged in in Jersey.
Orbis also shows that Apple has a subsidiary in the tax haven of the Cayman Islands. Its
name is Xiaoju Kuaizhi Inc, and this subsidiary appears to play a central role in Apple’s
company structure as it is the owner (parent company) of another 43 subsidiaries
across most of the world. Xiaoju Kuaizhi Inc discloses no financial information in Orbis,
and when searching for Xiaoju Kuaizhi Inc in the Cayman Island’s company register
the result was “Name of entity not found”.
Number and transparency of Apple’s subsidiaries in EU countries.

10

 Apple’s seven significant subsidiaries
In its Annual Report, Apple provides a list of significant subsidiaries. It states that
“the names of other subsidiaries of Apple Inc. are omitted because, considered in the
aggregate, they would not constitute a significant subsidiary as of the end of the year
covered by this report”. Ireland does not disclose this financial information as Apple
has five of its seven “significant subsidiaries” incorporated in Ireland.

Number and transparency of Apple’s subsidiaries in EU countries.

Source: Orbis database, https://www.bvdinfo.com , see Appendix 1 for full dataset.

Apple discloses no financial information regarding any of these seven subsidiaries
in its annual report. In the database Orbis financial information can only be found in
one of these seven subsidiaries; Apple Computer Trading (Shanghai) Co., LTD. This
subsidiary has large sales of USD 35 billion (presumably to the Chinese market) but
very limited profits (less than 2% of sales) and therefore the provision for income tax
is also very limited in relation to the large sales.

11

 Apple’s global tax rate outside the USA
In its 2017 annual report Apple states that its total foreign (i.e. non-US) earnings in
2017 was USD 44.6 billion, and the total foreign provision for income tax was only
USD 1.66 billion. Table 3 shows that Apple’s tax rates on foreign earnings were only
3.7% to 6.2% for the years 2015-2017.
Average tax rate on non-US earning 2015-2017 (billion USD and %)

Source: Data are from Apple Inc. 10-K filings to the US Securities and Exchange Commission (SEC). http://investor.
apple.com/sec.cfm?ndq_keyword=&DocType=Annual, accessed June 2018.

If one aggregates the operating profit minus “R&D cost” and “Other corporate expenses,
net” for the segments outside “the Americas” one arrives at a figure a bit smaller than
the “non-US” pre-tax earnings listed above. (The implications of this mis-fit between
”non-US” and ”non-Americas” is explained below in the Assumptions section.)
Calculating the average tax rate outside the Americas this way, the result is a tax rate
between 4.5% and 6.7% for 2015-2017.

12

 Average tax rate based on “non-American” operating profits minus “R&D cost” and “Other
corporate expenses, net” (billion USD and %)

Source: Data are from Apple Inc. 10-K filings to the US Securities and Exchange Commission (SEC). http://investor.
apple.com/sec.cfm?ndq_keyword=&DocType=Annual accessed June 2018 (see appendix 3 for calculations).

Using Apple’s geographical segments’ net sales minus ”Total cost of sales” and
“Operating Expenses” we again come close to the averages above. The tax rate
ranged between 4-7% and 6-9% for 2015-2017.
Average tax rate based on “non-American” segments’ net sales minus ”Total cost of sales”
and “Operating Expenses”. (billion USD and %)

Source: Data are from Apple Inc. 10-K filings to the US Securities and Exchange Commission (SEC). http://investor.
apple.com/sec.cfm?ndq_keyword=&DocType=Annual accessed June 2018. (see appendix 4 for calculations).

13

 Apple’s earning and tax payments in the EU
Apple’s geographical segment “Europe” includes European countries, as well as India,
the Middle East and Africa. As Apple does not disclose financial data for individual
countries it is not possible to know exactly how much of these sales takes place in EU
countries, but a qualified guess goes as follows:
According to documents posted with the Indian Registrar of Companies, the Apple
subsidiary Apple India Pty. Ltd had sales in India of USD 1.8 billion for the year ending
March 2017, and USD 1.5 billion and 1.0 for 2016 and 2015 respectively.
The number for Africa and the Middle East is likely smaller as this market is smaller,
and Apple held only a 3%-7% market share in 2015-2016 in Africa and the Middle
East.
Apple’s 2016 net sales in Russia totalled USD 2.0 billion, and in 2015 USD 1.2 billion.
Taking into account other European non-EU countries (e.g. Norway and Switzerland),
a rough guess is that 90% of the Europe segment’s sales and operating income go to
EU-countries (see appendix 5 for calculations).
Undistributed earnings generated in Ireland
If Apple repatriates its international income back to the USA, for instance to use it to
pay dividends to shareholders, Apple would have to pay US tax on the repatriated
income. In order to avoid this tax Apple keeps most of its international profit outside the
USA. In its annual reports Apple itself states that “substantially all of the Company’s
undistributed international earnings intended to be indefinitely reinvested in operations
outside the U.S. were generated by subsidiaries organised in Ireland…”.
These undistributed earnings have increased by USD 59 billion in the three years
2015-2017 and, according to Apple, they have been generated in Ireland and taxed

14

 accordingly (see table 6). Whether these undistributed earnings have been taxed
correctly is contested in the EU Commission’s state aid allegation case against Ireland
for the years 2003-2014. (see appendix 5 & 6 for calculations)
Cash, cash equivalents and marketable securities held in Apple subsidiaries
According to the EU Commission’s Decision of 30 August 2016, Apple’s holding of cash,
cash equivalents and marketable securities through non-US subsidiaries corresponds
substantially to foreign profits which were not subject to taxation. According to the
Commission it is likely that Apple’s holding of cash, cash equivalents and marketable
securities has been generated by subsidiaries organised in Ireland. These statements
are debatable as court proceedings of the EU Commission’s state aid allegation are
still in progress.
Nevertheless, Ireland remains at the centre of Apple’s non-US operation, and, according
to Apple’s annual reports the total amount of cash, cash equivalents and marketable
securities has increased by USD 115 billion during the three years 2015-2017. If this
USD 115 billion is considered as generated in Ireland we get an even higher amount
for Apple’s earnings in the EU (see table 6) (see appendix 5 and 6 for calculations).

15

 Estimates of Apple’s EU incomes and tax payments for the three years 2015-2017
 

The EU portion of tax payment is estimated by apportioning all non-US tax according to the geographical segment of total
operating profiits, 2015-2017. In the case of (1) the same technique is used to estimate the EU portion of “R&D costs” and “other
corporate expenses” (see appendix 3,5 and 6)
Source: Data are from Apple Inc. 10-K filings to the US Securities and Exchange Commission (SEC). http://investor.apple.com/
sec.cfm?ndq_keyword=&DocType=Annual accessed June 2018. (see appendix 6 for calculations).

16

 Table 6 estimate points to a tax rate of Apple’s EU income of between 1,7% and
8,8%. However, there are reasons to believe the rate could be even smaller, as will be
explained in the following sections.
Assumptions
The estimates above are based on the following assumptions:
Assumption 1
Unless otherwise stated, Apple’s average rate for provision for income tax is assumed
uniform for all non-US countries (i.e. that Apple should pay the same percentage on its
income in the EU as in other non-US countries). This seems a conservative estimate
as the average statutory corporate tax rate is significantly lower in the EU compared
to other major Apple markets outside the USA (see table 7).

Source: See KPMG’s table of worldwide corporate income tax (CIT) rates, https://home.kpmg.com/xx/en/home/
services/tax/tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html

17

 Assumption 2
For tables 4, 5, 6, 10 and 11, the total non-US provision for income tax is calculated
as a percentage of the total non-Americas earning, as the non-Americas provision for
income tax is not available. This implies that sales and profits in Canada and Latin
America (which together with USA constitutes the Americas segment) are excluded in
the total non-Americas earnings but included in the non-US income tax provision. This
makes the estimation of tax rates less precise, but it is a conservative estimate, as the
estimated tax rates comes out higher than would be the case if data for sales and profit
had been available for Canada and Latin America.
Reasons to believe the effective tax rate is even lower.
Assumption 3
The above tables and estimates assume that Apple’s provisions for foreign tax equals
money actually transferred to foreign governments. However, it is likely this later
amount is substantially smaller.
Apple’s 10-K Cash Flow Statements do not disclose “Cash paid for income tax to
foreign governments” - however, it does disclose the total “Cash paid for income taxes,
net”. For 2015-2017, this total cash allocated for tax payments was only 70% of the
total Provision for Income Tax (see Table 8).

18

 Differences between cash allocated for tax payments and provision for tax payments
in 2015-2017

Source: Data are from Apple Inc. 10-K filings to the US Securities and Exchange Commission (SEC). http://investor.
apple.com/sec.cfm?ndq_keyword=&DocType=Annual accessed June 2018.

In its 2013 hearing the US Senate’s Permanent Subcommittee on Investigations found
a large discrepancy between Apple’s federal tax returns filled to the Internal Revenue
Service (IRS) and Apples reported provisions for income tax as stated in its annual
reports. Moreover, this discrepancy increased over the three-year period. Thus, in
2010 and 2011 the tax provisions in the annual reports were almost three times higher
than the amount reported on actual tax return.

19

 Differences between tax returns filled with the IRS and the tax
provision in annual report (10-K) 2015-2017

Source: United States Senate Permanent Subcommittee on Investigations Hearing May 21, 2013 On Offshore
Profit Shifting and the U.S. Tax Code. Part 2 (Apple Inc.) www.hsgac.senate.gov/download/?id=B2F27D33856B-4B2A-8B55-D045DC285978 accessed June 2018, AND , Data are from Apple Inc. 10-K filings to the US
Securities and Exchange Commission (SEC). http://investor.apple.com/sec.cfm?ndq_keyword=&DocType=Annual
accessed June 2018.

Table 10 (below) applies this range of 40%-70% to the estimates of the EU tax rates
listed in Table 6.

20

 Estimates of Apple’s effective tax rate in the EU in 2015-2017

Source: United States Senate Permanent Subcommittee on Investigations Hearing May 21, 2013 On Offshore
Profit Shifting and the U.S. Tax Code. Part 2 (Apple Inc.) www.hsgac.senate.gov/download/?id=B2F27D33856B-4B2A-8B55-D045DC285978 accessed June 2018, AND , Data are from Apple Inc. 10-K filings to the US
Securities and Exchange Commission (SEC). http://investor.apple.com/sec.cfm?ndq_keyword=&DocType=Annual
accessed June 2018.

21

 The maximum possible effective tax rate is 8.8%. This estimate assumes that Apple’s
only income in the EU is the undistributed income which Apple itself states was
substantially generated in Ireland, and it assumes that the entire non-US tax provision
was paid in the EU.
The minimum possible tax rate is 0.7%. This estimate assumes that Apple’s
income in the EU equals Apple increase in “cash, cash equivalents and marketable
securities” in the years 2015-2017, and it assumes that Apple only paid taxes in the
EU corresponding to the EU portion of non-US provision for income tax apportioned
according to geographical segments’ operating profits (see table 6 and appendix 5).
It assumes a discrepancy between the provision for tax payments and taxes actually
paid equal to the discrepancy uncovered by the US Senate subcommittee in 2013
(see table 9).
What amount does the EU lose from Apple’s tax gimmicks?
In 2013 in a testimony to a Congressional panel, Apple CEO Tim Cook said, “We
don’t use “tax gimmicks”. In light of the above facts and estimates this statement
seems questionable. It seems like a reasonable demand that Apple and other large
corporations share with the public how much they actually pay in tax and where they
pay it. Table 11 shows that EU citizens lose billions of euros every year. From 2015 to
2017 it adds up to an amount between 4 billion and 21 billion euros.

22

 Estimates of Apple’s EU incomes and tax payments for the three years 2015-2017 (see Appendix 7)

Source: United States Senate Permanent Subcommittee on Investigations Hearing May 21, 2013 On Offshore
Profit Shifting and the U.S. Tax Code. Part 2 (Apple Inc.) www.hsgac.senate.gov/download/?id=B2F27D33-856B4B2A-8B55-D045DC285978 accessed June 2018, AND , Data are from Apple Inc. 10-K filings to the US Securities
and Exchange Commission (SEC). http://investor.apple.com/sec.cfm?ndq_keyword=&DocType=Annual accessed
June 2018. , AND , KPMG’s table of worldwide corporate income tax (CIT) rates, https://home.kpmg.com/xx/en/
home/services/tax/tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html
(see Appendix 7 for calculations)

23

 Apple’s tax structure in Ireland post-2014
Senate investigation
While other US multinational corporations were using the Double Irish, Apple went
above and beyond when it came to tax creativity. Apple’s offshore subsidiaries - Irish
companies according to the US authorities - were “stateless” under Irish law, in what
US Senator Carl Levin called the “holy grail of tax avoidance”. For a period of five
years its main European, Middle East and Africa subsidiary didn’t just reduce its tax bill
but avoided paying any tax anywhere. The scheme was first outlined comprehensively
in the detailed memorandum by the Senate Subcommittee inquiry into offshore profitshifting by Apple in May 2013. The Senate report outlined how through the use of three
Irish-registered letterbox companies, Apple Inc could claim they existed nowhere for
tax purposes.
Holding company Apple Operations International, or AOI, was solely owned by Apple
Inc and in turn owned most offshore entities. AOI was incorporated in Ireland but was
not tax resident there. The second company, Apple Sales International (ASI) held the
IP rights to sell Apple products in Europe, the Middle East and Asia. Through a costsharing arrangement on R&D between Apple Inc and ASI, from 2009-2012 ASI paid $5
billion to Apple Inc, while Apple Inc paid $4 billion under the cost-sharing agreement
over the same period. It was this fee from Apple Inc that was taxed in Ireland. ASI
outsourced the manufacturing of its products from its Irish subsidiary to China, then
collected sales profits from these products in its non-resident branch. While Apple Inc
declared profits of $38 billion (subject to the then US corporate tax rate of 35 per cent),
letterbox company ASI declared profits of $74 billion and paid less than one per cent in
tax to Ireland. “Common sense says Apple would never have offered such a lucrative
arrangement in an arm’s-length deal with an unrelated party,” Senator Levin said. The
third key subsidiary, Apple Operations Europe, was also registered in Ireland but not
tax resident there. Sales income for ASI from 2009-2012 was $74 billion. In 2011, ASI
paid tax of 0.005% – $10 million of $22 billion income – to Ireland .
24

 Commission state aid ruling
The European Commission opened an investigation in June 2014 as to whether two
tax rulings, or advanced opinions, provided by Irish Revenue to Apple subsidiaries in
1991 and 2007 and determining profit allocation between resident and non-resident
branches, constituted illegal state aid that selectively preferenced the companies
(AOE and ASI). The key points of the Commission’s preliminary findings in September
2014 were that the 1991 tax ruling appeared to have been “reverse engineered”,
and that the 2007 amended tax ruling which calculated a 10-20 per cent increase on
AOE’s costs was “meaningless in relation to the computer industry”. Unlike most tax
rulings, which usually last for three to five years, the 1991 ruling had no end date. The
Commission said there was evidence the tax rulings was “motivated by employment
considerations”, and that the terms of the tax rulings did not comply with the arm’s
length principle for setting conditions between companies of the same corporate group.
The Commission’s final ruling in 2016 found Ireland had provided illegal state aid to
Apple through these two tax rulings; that profits could not be attributed to the “head
office” or stateless branches as there was no substance to them; that these profits
must necessarily then be attributed to Apple’s Irish-resident subsidiaries; and that as
a result Apple owed Ireland €13 billion plus interest. The Commission’s statement
accompanying the ruling stated: “Specifically, Revenue endorsed a split of the profits
for tax purposes in Ireland: Under the agreed method, most profits were internally
allocated away from Ireland to a ‘head office’ within Apple Sales International. This
‘head office’ was not based in any country and did not have any employees or own
premises. Its activities consisted solely of occasional board meetings”. The Irish
government has lodged an appeal against the Commission’s findings.
As part of its state aid ruling, the Commission provided the diagram below outlining the
subsidiaries that were central to Apple’s corporate structure in Ireland in 2003-2014.
1. The Senate Subcommittee memorandum examines the relationship between Irish tax law on residency and loopholes in the US tax code (subpart
F), specifically the ‘check-the-box’ and ‘look-though’ rules. The check-the box loophole was introduced in the 1990s and allows companies to literally
check a box on its declarations to the IRS stating what kind of entity they are for tax purposes – meaning multinational corporations can declare
offshore subsidiaries to be part of one single corporation and therefore not taxable. The look-through loophole introduced in 2006 provides relief
from the anti-deferral rules for Controlled Foreign Companies in the US tax code.

25

 Apple’s pre-2015 corporate structure

Source: Commission Decision (EU) 2017/1283 of 30 August 2016 on State aid SA.38373 (2014/C) (ex 2014/NN)
(ex 2014/CP) implemented by Ireland to Apple (notified under document C(2017) 5605). https://eur-lex.europa.eu/
eli/dec/2017/1283/oj

26

 Apple’s 2015 restructure
The subsidiaries on the Commission’s chart above can also be found on Apple’s 2017
list of “significant subsidiaries”. As of June 2018, the Irish Company Register shows
only a slight change in this structure in respect to 2016, where the two subsidiaries as
ASI and Apple Distribution International have swapped places in the setup. According
to the latest data in Orbis (2017-2018) these Irish subsidiaries are themselves owners
of more than 20 subsidiaries as part of Apple’s global structure.
In the course of the state aid investigation, the Commission was informed of the details
of Apple’s 2014-2015 restructure. The report includes a page outlining the information
that Apple and Ireland provided but all substantial details are redacted aside from the
following points :
• 
Apple stated that the new structure was established in response to Ireland’s
change to Section 23A TCA 97, as from 1 January 2015 (ending “statelessness”)
• 
Apple informed the Commission that the 2007 tax ruling on profit allocation
ended at the end of 2014; and
• 
In relation to the new structure, the Commission requested “any underlying
documents such as transfer pricing reports”.

2. European Commission, 2016. COMMISSION DECISION of 30.8.2016 ON STATE AID SA.38373 (2014/C) (ex 2014/NN) (ex
2014/CP) implemented by Ireland to Apple, page 42

27

 Paradise Papers revelations and Apple’s response
In November 2017, the Paradise Papers were published by the International Consortium
of Investigative Journalists (ICIJ). The leak mainly came from law firm Appleby and
included several important revelations regarding Apple’s post-2014 structure.
These revelations included the following information:
• 
Apple went jurisdiction-shopping following the 2013 US Senate Inquiry into its
tax avoidance schemes;
• 
Apple’s lawyers, Baker McKenzie, sent a questionnaire to Appleby
representatives in six different tax havens in 2014 – the British Virgin Islands, Cayman
Islands, Bermuda, Guernsey, Isle of Man and Jersey – requesting if they could confirm
that the use of an Irish-type Double Irish structure could work in these jurisdictions.
• 
Specifically they asked if these Appleby offices could “confirm that an Irish
company can conduct management activities (such as board meetings, signing of
important contracts) without being subject to taxation in your jurisdiction”.
• 
Apple settled on Jersey and used the three-month grace period provided by the
Irish government for new companies to establish a non-resident Irish branch when it
announced the phasing out of the Double Irish in October 2014 (Apple set up shop in
Jersey in December 2014 according to the Appleby documents);
• 
This grace period allowed Apple to relocate the “management and control”
of two out of three of its significant Irish subsidiaries – ASI and Apple Operations
International – to Jersey.
• 
Apple Operations Europe relocated its tax residency to Ireland and purchased
the IP license previously held by ASI’s “nowhere” branch.

28

 While the establishment of the Jersey branches indicated the potential use of a Double
Irish-type structure, it appears that Apple began using a significantly different tax
avoidance technique from 2015, as first outlined by the ICIJ.
Ireland’s macroeconomic data sheds some light
Many commentators speculated even before the release of the Paradise Papers that
Ireland’s 26% growth rate in GDP in 2015 – a sudden increase of €41 billion – could
be attributed to Apple’s decision to bring its intellectual property onshore to Ireland.
This is true but it is only part of the story. According to the Commission’s state aid
ruling, ASI made profits of €24-25 billion in 2014 (though this figure had been €35
billion in 2012).
In the first quarter of 2015, the following economic indicators were observed in Ireland
by the Central Statistics Office, which revised its projections as follows:
• 

€15 billion was added to goods exports;

• 

€56.6 billion was added to exports;

• 

€20.2 billion was added to imports;

• 

€6.8 billion was added to investment.

Seamus Coffey, chairperson of Ireland’s Fiscal Advisory Council, writing in a personal
capacity, examined the macroeconomic data available on changes in the Irish economy,
particularly in the first quarter of 2015, to shed further light on Apple’s new structure.
Coffey attributes the rise in exports to the sales executed by Apple and now recorded
in Ireland; the rise in imports to the purchase of parts and the fee paid by Apple to its
Chinese manufacturers; and the rise in investment to research and development – the
Irish subsidiary contribution to the cost-sharing agreement with Apple Inc in the US.
29

 Two other indicators provide crucial insight into Apple’s restructure:
• 
While gross trade profits increased by €50.7 billion, deductions increased by
€40 billion, including a €27.5 billion increase in capital allowances.
• 
Ireland’s external debt jumped massively by €250 billion in in the first quarter of
2015 and has dropped quickly since then.
The rise in the use of deductions combined with the fact that Apples tax bill did not
increase by any significant measure appears to confirm speculation that the capital
allowance regime provided a near-total offset mechanism for sales profits. Additionally,
the massive rise in debt suggests Apple borrowed a huge sum from one of its subsidiaries
in order to pay for the relocation of the IP license to Apple Operations Europe, now
Irish-resident. The quick repayment of this debt is likely a result of the government’s
introduction of a deduction of 100% for interest associated with the purchase of IP
falling under the capital allowances plan.
Is Apple’s use of the capital allowance illegal?
Coffey examines the breakdown of the GDP jump between the net amounts attributed
to Irish residents – €21.6 billion of the €41 billion – and that accruing to non-residents,
€19.6 billion. The €19.6 billion reflects after-tax net profit, suggesting Irish Revenue
should have received an additional €2.5 billion in corporation tax from Apple in 2015.
Apple’s statement in response to the Paradise Papers rules this out as a possibility,
as the company stated it had paid €1.5 billion to Ireland from 2015-2017, ie, around
€500 million each year. He suggests that if the Commission’s reasoning is upheld in
the state aid case, the post-2014 structure may also be found to be illegal. Ireland’s
law regulating the use of the capital allowance specifically rules out the use of the
allowance where “the main purpose or one of the main purposes is the avoidance of,
or reduction in, liability to tax”.

30

 Apple’s corporate structure post-2014

Source: An estimate based on information in Ireland’s Companies Register and the Paradise Papers revelations

31

 Based on the available data and information, we suggest that Apple’s new corporate
structure operates in the following way:
• 
Apple Operations International maintains its non-resident status but no longer
holds the rights to Apple’s IP. Now based in Jersey it is likely to hold large cash reserves
that are not subject to any tax;
• 
Apple Sales International is no longer responsible for sales. It has relocated
from “nowhere” to Jersey;
• 
Apple Distribution International, which was always Irish-resident, now has
responsibility for executing and recording sales in Ireland;
• 
Apple Operations Europe has been relocated to Ireland and made a one-off
purchase of Apple’s IP license(s) from Apple Sales International in 2015. The IP is now
held in Ireland;
• 
The expenditure AOE has incurred resulted in a massive transfer of wealth to
zero-tax Jersey and Apple’s use of capital allowances has offset any additional tax
on profits from sales, resulting in Apple maintaining essentially the same tax rate in
Ireland post-2014; (Apple states that it paid Ireland USD 400 million in tax in 2014)
• 
In order to purchase the IP licenses, Apple Operations Europe borrowed huge
sums of money from an offshore subsidiary, (possibly Apple Operations International
in Jersey) and makes repayments from Ireland to the offshore subsidiary including
interest repayments which can be written off in Ireland;
• 
One of the Irish-resident Apple subsidiaries maintains a cost-sharing agreement
with Apple Inc and classifies its fee to the parent company as investment in R&D in
Ireland, availing of R&D tax credits that lower the tax rate to 3.75%.

32

 Apple’s mountain of offshore cash grows

The ICIJ chart below illustrates the cumulative impact of the Irish restructure on the amount of cash Apple holds
offshore, estimating that by this year (2018) this amount will have doubled since 2014.
Source: ICIJ, 2017

33

 The enablers: Aspects of Ireland’s tax law and
policy that facilitate Apple’s tax avoidance
Apple relied on several features of Irish tax law and policy before 2015 in order to
enact the tax avoidance strategy that was exposed by the investigations of the US
Senate and the European Commission.
These included, but were not limited to:
• 

Ireland’s tax residency laws;

• 

Ireland’s intellectual property tax regime (Ireland’s withholding tax regime);

• 

Ireland’s transfer pricing laws;

• 
The use of private “unlimited liability company’”status, which exempts companies
from filing financial reports publicly;
• 
Advanced pricing agreements (APAs) and “opinions” issued by Ireland’s
Revenue agency, and the secrecy surrounding these agreements;
In the majority of these areas, the Irish government has been forced by international
pressure to enact change. This has largely taken place through the framework of
implementing EU Directives and/or the OECD BEPS standards. However, through
delays and exemptions, several of these features of Irish tax law that enable tax
avoidance remain in place at present.

34

 Ireland’s tax residency laws
The Double Irish tax avoidance scheme is used by mainly US multinational corporations
whose business is based upon the exploitation of intellectual property. It relies on two
Irish subsidiaries, both incorporated in Ireland: the first subsidiary is tax-resident in
Ireland, but the second is tax-resident in an offshore tax haven with a low or zero
corporate tax rate (eg, Bermuda). Under US law, both subsidiaries are considered
to be Irish, and under Irish law the second subsidiary is a Bermuda company for tax
purposes. Typically the Bermuda-resident subsidiary of the US multinational sells IP
assets to the Irish-resident subsidiary, which collects sales profits and in turn transfers
these profits to Bermuda in the form of payments for the use of IP. The royalties
earned by the Bermuda-resident company would be subject to that state’s corporate
tax rate – zero.
Apple’s tax structure before 2015 was not, strictly speaking, a Double Irish structure.
Apple’s offshore subsidiaries, Irish companies in the eyes of the US authorities, were
“stateless” under Irish law. US multinationals who have used, or are using, the Double
Irish scheme include Microsoft, Google, Facebook, Pfizer, News Corp, Yahoo, AirBnB,
Starbucks and IBM, among many others. To look at just one example of the scale of
tax avoidance being facilitated by this structure, the US Senate Subcommittee inquiry
into tax avoidance by Microsoft in 2012 showed that the company had avoided paying
at least $6.5 billion between 2009-2012 through the use of its subsidiaries in Ireland,
Bermuda, Singapore and Puerto Rico.

35

 Double Irish transition period
In 2013, the Irish Finance Minister announced that the ability for Irish-incorporated
companies to be “stateless” was to end. However, the change enacted was limited.
This limitation on statelessness only applied to companies managed and controlled in
an EU member state or a treaty partner; it does not apply to those companies managed
and controlled in countries Ireland does not have a tax treaty with, including several
notorious tax havens. Then in October 2014, in response to international pressure
arising from the US Senate and Commission state aid investigations, the Finance
Minister announced: “I am abolishing the ability of companies to use the ‘Double Irish’
by changing our residency rules to require all companies registered in Ireland to also
be tax resident.” However, he added that existing companies would have a “transition
period” that is to last until the end of 2020, and that new companies would have until
January 1 2015 to set up such a structure that can legally use the Double Irish until the
end of the transition period.
Several US multinationals are quietly continuing to use the Double Irish to shift billions of
euros into offshore tax havens. For the financial year of 2015, Google Ireland Limited’s
revenue jumped 23% to €22.6 billion, but the Internet giant used the Double Irish
scheme to reduce its taxable profits to just €341 million. The Irish-resident subsidiary
paid “administrative fees” – mainly royalty payments – to a network of other Google
subsidiaries that flow back to its Bermuda-resident Google Holdings Ireland. There
are no existing estimates of the amount of profits that will be shifted to offshore tax
havens by US multinationals between 2014-2020 through the continuing use of the
Double Irish.

36

 Double Irish remains in place through double taxation treaties
In addition to the six-year transition period, there is a loophole in many of Ireland’s
double taxation treaties that allows the Double Irish to continue to be used beyond the
2020 phaseout date. Although it has now been enacted in Irish legislation that Irishincorporated companies will be Irish-resident for tax purposes by default, a provision in
several tax treaties maintains a “management and control” test. Ireland’s tax treaties
override domestic law – and under several tax treaties, a company resident in both
Ireland and a country it has a treaty with will have tax residency determined according
to the management and control rule. In other words, if a company is incorporated in
Ireland, and routes its sales through Ireland, but claims its centre of management is
in the jurisdiction of its treaty partner, the company can use the Double Irish structure.
This provision does not necessarily facilitate tax avoidance – but it does when the
treaty partner is a low or zero-tax jurisdiction. A Christian Aid study (2017) has found
that Microsoft (LinkedIn) and pharmaceutical company Allergan (Zeitiq) are both using
this provision in the Ireland-Malta treaty in a Double Irish-replacement scheme dubbed
the “Single Malt”.
A review of Ireland’s 72 treaties was carried out as part of this study, which found
that the “management and control” provision remains in place in many tax treaties,
including with jurisdictions commonly considered to be tax havens such as Panama,
Malta, Hong Kong, the United Arab Emirates, the Netherlands and Belgium.
The Irish government has resisted calls to revise its network of tax treaties in order
to eliminate the management and control provision. Ireland has adopted the OECD
Multilateral Instrument. In June 2017 Ireland signed the OECD’s Multilateral Instrument
(Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS),
which will allow it to update its existing treaties to meet certain standards without
initiating bilateral negotiations with treaty partners. However, the Irish government
refused to opt in to Article 12 of the Multilateral Instrument, which specifically takes
aim at companies artificially avoiding permanent establishment status through double
taxation treaties.
37

 Finding a replacement for the Double Irish
Intellectual property is central to profit-shifting involving Ireland. In a January 2011
briefing on “Uses of Ireland for German Companies”, the largest corporate law firm in
Ireland, Arthur Cox, advised: “The effective corporation tax rate can be reduced to as
low as 2.5% for Irish companies whose trade involves the exploitation of intellectual
property… A generous scheme of capital allowances as well as a tax credit for money
invested in research and development in Ireland offer significant incentives to companies
who locate their activities in Ireland.” This advice regarding the use of Ireland was
openly advertised by many corporate law firms and the Big Four accounting firms until
the growth in public awareness of tax avoidance made such advertising controversial.
The Double Irish was one major feature of Ireland’s intellectual property regime, but it
was accompanied by an inexplicably generous capital allowance for intangible assets
that was introduced in 2009 as well as significant tax credits available. At the same
time as the Irish government announced the phase-out of the Double Irish in 2014,
it introduced a Knowledge Development Box, while increasing the available capital
allowance for intangible allowance and expanding the R&D credit. The combined
effect of these measures has been to replicate the effect of the Double Irish regarding
the effective tax rate paid by multinational corporations trading in IP.

38

 Modified-nexus patent box leaves multinationals dissatisfied
In 2016 the Irish government introduced the Knowledge Development Box, a
corporate tax rate of 6.25% for profits arising from certain forms of IP. Ireland had
already introduced the first patent box, a lower rate of tax on IP-related profits, in
2000 before the introduction of the 12.5% corporate tax rate. The OECD-BEPS project
proposed action to reduce the potential for profit-shifting abuse through patent boxes
by ensuring there was a genuine link, or nexus, between the lower tax rate and R&D
that was initially developed in the home state.
A German-British compromise in November 2014 resulted in the so-called modified
nexus approach being adopted by the OECD, which retained requirements for genuine
local initial IP development but added concessions including a transition period and a
30 per cent “uplift” in what counts as qualifying expenditure to reflect outsourced intragroup research activities and costs. Part of the OECD agreement was that all new
entrants into existing patent box schemes that did not comply with the modified nexus
approach would have to cease by 30 June 2016 and be abolished by 2021. When
introducing the Knowledge Development Box in 2016, the Irish government stated
that it would be the first and only patent box in the world to be fully compliant with the
OECD’s modified nexus approach.
The Irish Knowledge Development Box took effect on January 1 2016. It applies a 50%
allowance in tax relief to “qualifying profits”, resulting in a 6.25% tax rate. Qualifying
profits arise from specified trade in “qualifying assets”, being intellectual property
resulting from research and development carried out in Ireland or an EU member
state. The intellectual property forms that can be qualifying assets are defined as being
copyrighted computer software, inventions protected by patents and supplementary
protection certificates, and plant breeders’ rights.

39

 As a result of the requirement for a demonstrable genuine link to local R&D
development, multinational corporations expressed mild disappointment with the
Knowledge Development Box. The corporate law firm currently representing the Irish
government in its appeal against the Commission’s Apple state aid ruling, William
Fry, said: “Overall, the KDB is to be welcomed as it bolsters Ireland’s competitive tax
regime and complements existing tax benefits for IP such as research and development
relief and the capital allowances available in relation to intangible assets. Given the
limitations where research and development is carried out by group companies, in
the first instance, the KDB relief may be more beneficial to indigenous companies.
However, with proper planning, the relief may also prove to be of benefit to multinational
enterprises.” In May 2018 the Irish government released figures showing that less
than 10 companies had used the patent box since 2016 and the cost of operating it
was €5 million.
R&D tax credits
Very little actual R&D is carried out in Ireland as a result of foreign direct investment.
R&D tax credits against corporation tax were introduced in 2004 and expanded in 2015
as the Double Irish phase-out began. A 25% tax credit is available on all qualifying R&D
expenditure in addition to a 12.5% tax deduction – so, a total of a 37.5% tax deduction
on such expenditure, or in other words, a corporate tax rate on R&D activity of around
3.3%. Any company which trades in Ireland carries out R&D activities in Ireland or in
the European Economic Area and incurs expenditure is eligible.
Before 2015, a base year of 2003 was in place – ie, a company could only claim credit
for expenditure over and above what it incurred in 2003. This was to be a rolling base
year in order to incentivise companies to spend more but the year didn’t change, and the
base year was abolished altogether in 2015. Under a Freedom of Information request,
it was revealed in January 2015 that Department of Finance officials “expressed
concern that changes to tax breaks in Budget 2015 would cost at least €50 million in
foregone taxes annually and reward a relatively small number of companies” – just 15
firms, including one that would benefit by €14 million. The names of the companies
40

 were blacked out in the FOI release. It was reported in September 2015 that 200
audits carried out in 2013 found “several multinational firms have been found to be
aggressively and improperly claiming tax credits for research and development to
lower their corporation tax bills”.
The Green Jersey: IP capital allowances and interest deduction
It is telling that some corporate law firms continue to advertise the exact same effective
tax rate that can be achieved for IP-related activities in Ireland – 2.5% – in 2018 as
they did in 2011. “Offshore magic circle” law firm Maples and Calder (which advises
clients on the tax laws of the British Virgin Islands, the Cayman Islands, Ireland and
Jersey) stated in January 2018 that Ireland’s 12.5% headline corporate tax rate can
be reduced to 2.5% for IP-related companies.
The law firm described a typical post-Double Irish structure, similar to that used by
Apple after 2014. We will call it the “Green Jersey” in reference to the Paradise Papers
revelations regarding Apple’s use of Jersey in its new structure, as outlined in Section
1, but it is not always necessary to use an offshore subsidiary. “An Irish company can
hold the IP and claim a deduction for capital expenditure incurred on the acquisition or
development of the IP as well as any interest expense incurred to acquire the IP. The
profits of the Irish company will typically be subject to the corporation tax rate of 12.5%
if the company has the requisite level of substance to be considered trading. The tax
depreciation and interest expense can reduce the effective rate of tax to a minimum
of 2.5%.”
The capital allowance for intangible assets was introduced in the Finance Act 2009,
with a cap of 80%. It meant relief in the form of a capital allowance against trading
income in a given reporting period or as a write-off against taxable income over 15
years. Deductions for associated interest expenses could also be written off up to an
80% cap.

41

 In its Budget 2015 Submission (September 2014) the American Chamber of Commerce
expressed its preference for the introduction of an ‘exemption-based’ patent box regime
to replace the Double Irish. However, it acknowledged that “there may be a number of
external issues which could prevent the implementation of such a regime in the short
term”, and that as a result, “the near term strategic focus in this context should be to
improve a number of key issues with the current Irish IP amortisation regime (Section
291A TCA 1997)”. Specifically it called on the Irish government to “increase the current
year restriction on profits from the IP against which the IP can be offset to 90% of the
relevant income” and to “remove interest payable on funds borrowed to acquire IP
from the current Section 291A calculations”.
The Irish government immediately did both in its 2015 Budget but went a step further
and introduced a 100% cap on the capital allowance that could be claimed for IP
expenditure. This resulted in the amount of capital allowances being claimed by
multinational corporations rising from €2.7 billion in 2014 to €28.9 billion in 2015.
In 2017 the Irish government announced that it would reintroduce the 80% cap, but
would not apply it to the IP that was brought onshore from 2015-2017, which included
Apple’s IP assets. The Department of Finance clarified that the same amount of capital
allowance is available under the cap; it just has to be used over a longer period of
time. The operation of the cap “is simply a timing matter” that “has no effect on the
overall quantum of capital allowances for intangible assets available to use against the
relevant trading income”.

42

 The essential features of this technique are:
• 

It can be used by large multinational corporations engaged in trading in IP;

• 
It has specifically been designed by the Irish government to facilitate near-total
tax avoidance by the same companies who were using the Double Irish tax avoidance
scheme;
• 
While the Double Irish was characterised by the flow of outbound royalty
payments from Ireland to Irish-registered but offshore-tax resident subsidiaries, this
scheme is characterised by the onshoring of IP and sales profits to Ireland;
• 
Sales profits are booked in Ireland, but the expenditure the company incurs in
the once-off purchase of the IP license(s) can be written off against the sales profits by
using the capital allowance programme for intangible assets;
• 
It is beneficial for the company to complement the tax write-off by continuing
to use an offshore subsidiary, but no longer for outbound royalty payments to flow
to. The role of the offshore subsidiary is to store cash and provide loans to the Irish
subsidiary to fund the purchase of the IP. The expenditure on the IP is written off, but
so too are the associated interest payments made to the offshore subsidiary, which
thus accumulates more cash that goes untaxed.
Withholding tax on patent royalties
The Double Irish was famously used in combination with a “Dutch Sandwich” – sending
money first through the Netherlands and then to Bermuda or another tax haven. This
was used to prevent outbound patent royalty payments from being subjected to a 20%
withholding tax by Irish Revenue through a tax treaty. It became no longer necessary
for multinational corporations to use the Netherlands in this way after July 2010 when
the American Chamber of Commerce successfully lobbied the Irish government to
amend its tax code to get rid of the withholding tax.
43

 Before July 2010, the only outbound royalties that were subject to a withholding tax in
Ireland were on patents, but there was an exemption for payments made to EU member
states or states that were part of Ireland’s tax treaty network. From July 2010, this
exemption was broadened to include outbound royalty payments to non-EU and nontreaty states if certain conditions were met. In March 2018, the Commission published
a report on ‘Aggressive Tax Planning Indicators’ among EU member states, which
found that 23% of Ireland’s GDP from 2010-2015 was made up of royalty payments,
while the EU average over the same period was 0.34% of GDP.
Ireland’s transfer pricing regime
Ireland’s transfer pricing regime was a key aspect of Irish law targeted by the
Commission in the Apple state aid ruling. Ireland introduced transfer pricing legislation
for the first time in 2010, exempting transfer pricing arrangements entered into before
that date. Oxfam has described the legislation as “exceptionally weak”. The law gives
Revenue the authority to examine whether a company may have understated income
or overstated expenditure in a transaction with a related company in which the armslength principle may not have been applied. The Irish government states that this
legislation makes it OECD-compliant on transfer pricing. However, as the Commission
points out in its ruling, of the five methods for assessing transfer pricing abuse identified
in the OECD’s 2010 Transfer Pricing Guidelines, the Irish legislation relies on the  . 
the least favoured method, the transaction net margin method (TNMM).
The TNMM is “one-way” in that it only examines the profitability of the Irish-resident
company engaged in the transaction. If Revenue believes a transaction where the
profits of the Irish-resident company are understated or expenditure is overstated, it
can request the company perform a self-review. If it is not satisfied with the results
3.The Financial Times reported in May 2013 that the American Chamber of Commerce submission to the Irish
government suggested Ireland’s attractiveness as a location for IP investment could be “significantly improved” by
scrapping the withholding tax on patent royalties.
4. Part 35A, Section 835A to Section 835H, of the 1997 Taxes Consolidation Act

44

 of the review Revenue may then decide to audit the company. However, most profitshifting involving Ireland involves inflating the profits booked in the jurisdiction, not the
other way around, so the transfer pricing legislation is largely meaningless. Additionally,
there are no controlled foreign company (CFC) or thin capitalisation rules in Irish tax
law, though CFC rules will be required under the EU’s Anti-Tax Avoidance Directive.
Transparency and ‘unlimited liability company’ status
A key finding of this study was that it is exceptionally difficult to access financial
information from Irish-resident multinational corporations as a result of the use of
private “unlimited liability company” (ULC) status by Apple and other multinational
corporations. ULC status provides an exemption for companies being required to
publicly file their financial information when they file their annual return, meaning their
financial affairs are kept secret.
The EU Accounting Directive (Directive 2013/34/EU) specifically requires that
companies in the EU publicly file their financial information. EU member states were
required to transpose the 2013 Accounting Directive by 20 July 2015. Ireland failed
to do so, and in September 2015 the Commission made a formal request to Ireland
for transposition. In June 2016 the Commission sent Ireland a reasoned opinion
requesting the transposition of the Accounting Directive and finally referred Ireland
to the European Court of Justice over its failure to transpose the Directive into is
domestic legislation in April 2017.
The Companies Act 2017, enacted in May 2017 and applying from June 2017, was
to impose the EU-wide standard on the production of financial statements on large
companies. However, an exemption in the legislation means that holding companies
with ULC status will not be required to file public financial reports until 2022.

45

 The Irish government has also stalled on transposing the fourth Anti Money Laundering
Directive into domestic law, missing the deadline of 26 June 2017. The Commission set
a final deadline of 8 May 2018 for the publication of the legislation in its reasoned opinion;
if Ireland missed this deadline it would be referred to the ECJ by the Commission in
the final stage of its infringement procedure. The government published the legislation
on 2 May 2018. Finally, while Ireland adopted country by country reporting according
to the OECD standard in 2016, it has continued to oppose the EU Directive on public
country by country reporting in the EU Council.
Tax rulings
Two advance tax rulings provided by Ireland’s Revenue agency to Apple Sales
International and Apple Operations Europe were at the centre of the Commission’s
state aid case against Ireland. The Commission’s state aid report revealed that at
least 11 other Advance Pricing Agreements (APAs) were concluded between Irish
Revenue and multinational corporations from1998 to 2010, most of which were still in
place in 2016. The Commission’s main finding in the ruling regarding these Revenue
agreements was that no consistent criteria were applied in deciding how much tax
these multinationals have to pay, and that there appears to be a pattern in the rulings
of using a profit-splitting method that allocates only a small amount of profits to the
Irish-resident branch or company. Despite calls by politicians and campaigners for
the pricing agreements to be made public, they remain secret, and the names of the
companies are redacted in the Commission’s state aid report.
Revenue introduced guidelines for bilateral APAs in 2016; however, the guidelines do
not apply to agreements concluded before 1 July 2016. The EU Joint Transfer Pricing
Forum stated in March 2018 that the total number of APAs in place in Ireland in 2016
was seven: five with EU member states and two with non-EU states. Under the EU’s
third Directive on Administrative Cooperation (DAC3 – EU Directive 2015/2376), which
Ireland implemented in 2017, EU member states are bound by mandatory automatic
exchange of information requirements relating to cross-border APAs. This information
is shared confidentially with other member states, and certain limited data is provided
to the Commission.
46

 ‘Opinions’
Revenue has another, less formal, instrument to issue tax rulings – advance opinions
– that are not all subject to the same information exchange requirements of DAC3.
Prior to 2016, Revenue did not collect data on the number and types of advance
opinions it provided to companies. During the Commission’s state aid investigation,
Revenue was required to compile data on opinions issued between 2010 and 2012,
which was a total of 335. It issued 99 opinions in 2010, 128 in 2011, and 108 in 2012.
In its Annual Report in 2016, Revenue reported that it had provided 254 opinions for
that year. In 2017 Revenue renewed 60 opinions (after it introduced a five-year limit on
the validity of its opinions), and provided 316 additional opinions. A breakdown of the
types of opinions issued includes those related to withholding tax on royalties; other
withholding taxes; availability of interest relief for loans. While the total opinions issued
in 2017 was 316, Revenue exchanged details of 32 opinions issued over the same
period under DAC3, around one-tenth. It is unclear if all of the opinions issued by
Revenue that have cross-border or transfer pricing implications are being exchanged
with other EU member states under DAC3 but the available data suggests this is
unlikely.

47

 For the appendix please click here
Apple report footnotes
1 Apple Inc. 10-K filings to the US Securities and Exchange Commission (SEC). http://investor.apple.
com/sec.cfm?ndq_keyword=&DocType=Annual
“ The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest
of Asia Pacific. Americas includes both North and South America. Europe includes European countries,
as well as India, the Middle East and Africa. Greater China includes China, Hong Kong and Taiwan.
Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other
reportable segments.”
2 Apple does not disclose tax payments for the segment. For table 4, 5, 6, 10 and 11 use total non-US
provision for tax income calculated as percentage of the total non-Americas earning (see more under
“Assumptions”). This implies that sales and profits in Canada and Latin America (which together with
USA constitutes the Americas segment) are excluded in the total non-Americas earnings but included
in the non-US income tax provision. Again, this seems a conservative estimate, as the estimated tax
rates comes out higher that would be the case if data for sales and profit had been available for Canada
and Latin America.
3 Some countries may have poor transparency standards and do not disclose any data from their
national company registries and thus Orbis cannot know about them.
4 By the start of 2015, it had restructured its affairs in Ireland, including securing tax residency in Jersey
for Apple Sales International and Apple Operations International, or close to 60 percent of Apple’s
worldwide earnings. https://www.icij.org/investigations/paradise-papers/apples-secret-offshore-islandhop-revealed-by-paradise-papers-leak-icij/
5 The Cayman Island’s company register, https://www.cima.ky/search-entities
6 Moreover, Apple Computer Trading (Shanghai) Co., LTD holds only an insignificant amount of cash
and cash equivalents (USD 748 million) according to Orbis
7 Apple Inc.’s ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, For the fiscal year ended September 30, 2017 , http://investor.apple.com/
financials.cfm accessed June 2018.

48

 8 https://www.livemint.com/Companies/eKxCasrqfunWnccPHIwndN/Apple-India-sales-rise-17-to-18billion-in-201617.html
9 https://stepfeed.com/iphone-sales-skyrocket-in-middle-east-and-africa-in-2015-7439 and
https://thenerveafrica.com/4801/apple-vs-samsung-the-great-smartphone-battle-is-coming-to-africa/
10 https://themoscowtimes.com/news/apple-reports-record-profits-in-russia-58523
11 Apple Inc. 10-K filings to the US Securities and Exchange Commission (SEC). http://investor.apple.
com/sec.cfm?ndq_keyword=&DocType=Annual, page 55
“The foreign provision for income taxes is based on foreign pre-tax earnings of $44.7 billion, $41.1
billion and $47.6 billion in 2017, 2016 and 2015, respectively. The Company’s consolidated financial
statements provide for any related tax liability on undistributed earnings that the Company does not
intend to be indefinitely reinvested outside the U.S. Substantially all of the Company’s undistributed
international earnings intended to be indefinitely reinvested in operations outside the U.S. were generated
by subsidiaries organized in Ireland, which has a statutory tax rate of 12.5%. As of September 30, 2017,
U.S. income taxes have not been provided on a cumulative total of $128.7 billion of such earnings. The
amount of unrecognized deferred tax liability related to these temporary differences is estimated to be
$42.2 billion.
“As of September 30, 2017 and September 24, 2016, $252.3 billion and $216.0 billion, respectively, of
the Company’s cash, cash equivalents and marketable securities were held by foreign subsidiaries and
are generally based in U.S. dollar-denominated holdings.
“Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to
the U.S.”
12 Apple Inc. 10-K filings to the US Securities and Exchange Commission (SEC). http://investor.apple.
com/sec.cfm?ndq_keyword=&DocType=Annual
From the 2017 10-K, page 55: “The Company’s effective tax rates for 2016, 2015 and 2014 differ from
the statutory federal income tax rate of 35% due primarily to certain undistributed foreign earnings, a
substantial portion of which was generated by subsidiaries organized in Ireland, for which no U.S. taxes
are provided when such earnings are intended to be indefinitely reinvested outside the U.S.”… As of
September 30, 2017 , U.S. income taxes have not been provided on a cumulative total of $128.7 billion
of such earnings.
From the 2014 10-K: “As of September 27, 2014, U.S. income taxes have not been provided on a
cumulative total of $69.7 billion of such earnings.”
13 EU COMMISSION DECISION of 30.8.2016 ON STATE AID SA.38373 (2014/C) (ex 2014/NN) (ex
2014/CP). https://eur-lex.europa.eu/eli/dec/2017/1283/oj, Recital (43)

49

 14 Ibid, Footnote 10 in Recital (43)
15 See KPMG’s table of worldwide corporate income tax (CIT) rates, https://home.kpmg.com/xx/en/
home/services/tax/tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html
16 EBITDA means ”Earnings before interest, tax, depreciation and amortization”. In the estimate based
on segments’ net sales, the income excludes “Total other income/(loss), net” which for the three years
have been between 1,0 and -1,5 billion USD. These are excluded because there is NO reason to
believe that there are equally allocated accross Apple Inc’s global operations. Moreover, as that amount
has varied from + 1,0 to -1,5 the change to the total estimate would be minimal.
17 Apple Inc. 10-K filings to the US Securities and Exchange Commission (SEC). http://investor.apple.
com/sec.cfm?ndq_keyword=&DocType=Annual
18 Applying the average exchange rate over the years 2015-2017. https://www.oanda.com/currency/
average
19 United States Senate Permanent Subcommittee on Investigations Hearing May 21, 2013 On
Offshore Profit Shifting and the U.S. Tax Code. Part 2 (Apple Inc.) https://www.gpo.gov/fdsys/pkg/
CHRG-113shrg81657/pdf/CHRG-113shrg81657.pdf
20 Ibid
21 The Senate Subcommittee memorandum examines the relationship between Irish tax law on
residency and loopholes in the US tax code (subpart F), specifically the ‘check-the-box’ and ‘lookthough’ rules. The check-the box loophole was introduced in the 1990s and allows companies to literally
check a box on its declarations to the IRS stating what kind of entity they are for tax purposes – meaning
multinational corporations can declare offshore subsidiaries to be part of one single corporation and
therefore not taxable. The look-through loophole introduced in 2006 provides relief from the anti-deferral
rules for Controlled Foreign Companies in the US tax code.
22 European Commission, 2014. State aid SA.38373 (2014/C) (ex 2014/NN) — Alleged aid to Apple
Invitation to submit comments pursuant to Article 108(2) of the Treaty on the Functioning
of
the
European
Union
(2014/C
369/04)
https://eur-lex.europa.eu/legal-content/EN/
TXT/?toc=OJ:C:2014:369:FULL&uri=uriserv:OJ.C_.2014.369.01.0022.01.ENG
23
https://www.irishtimes.com/business/technology/legal-fees-in-apple-state-aid-case-exceed-45m-1.3513597
24 The Irish Company Register, https://www.cro.ie/

50

 25 European Commission, 2016. COMMISSION DECISION of 30.8.2016 ON STATE AID SA.38373
(2014/C) (ex 2014/NN) (ex 2014/CP) implemented by Ireland to Apple, https://eur-lex.europa.eu/eli/
dec/2017/1283/oj, page 42
26 https://www.icij.org/investigations/paradise-papers/apples-secret-offshore-island-hop-revealed-byparadise-papers-leak-icij/
27 http://economic-incentives.blogspot.com/2018/01/what-apple-did-next.html
28
https://www.cso.ie/en/statistics/externaltrade/
and
https://www.cso.ie/en/statistics/
keyeconomicindicators/, cited in http://economic-incentives.blogspot.com/2018/01/what-apple-didnext.html
29 http://economic-incentives.blogspot.com/2018/01/what-apple-did-next.html
30 Ibid
31 Ibid
32 https://www.apple.com/newsroom/2017/11/the-facts-about-apple-tax-payments/
33 Taxes Consolidation Act 1997, section 291A (7) (c) http://www.irishstatutebook.ie/eli/1997/act/39/
section/291/enacted/en/html
34 https://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-profit-shifting-andthe-us-tax-code
35 http://www.thejournal.ie/michael-noonan-budget-2014-stateless-companies-1130546-Oct2013/
36
https://www.irishtimes.com/business/economy/full-text-michael-noonan-s-budget-2015speech-1.1962981
37
https://www.theguardian.com/business/2016/nov/04/google-pays-47m-euros-tax-ireland-22bneuros-revenue
38 https://www.christianaid.ie/sites/default/files/2018-02/impossible-structures-tax-report.pdf, pp16-18
39 https://www.revenue.ie/en/tax-professionals/tax-agreements/double-taxation-treaties/index.aspx
40
https://www2.deloitte.com/ie/en/pages/tax/articles/multilateral-instrument-department-of-financeannounces-irish-positions.html

51

 41 https://www.pwc.com/gx/en/paying-taxes/assets/pwc-paying-taxes-2014.pdf
42 http://www.tcd.ie/iiis/documents/discussion/pdfs/iiisdp442.pdf
43 The economists were Kate Levey and Seamus Coffey. http://www.budget.gov.ie/Budgets/2015/
Documents/Technical_Paper_Effective_Rates_Corporation_Tax_Ireland.pdf
44 https://www.taxjustice.net/2015/11/11/how-ireland-became-an-offshore-financial-centre/
45
https://ec.europa.eu/taxation_customs/business/economic-analysis-taxation/taxation-trends-euunion/taxation-trends-eu-union_en
46 http://www.finfacts.ie/biz10/Ireland_tax_multinationals_IP_intellectual_Property.pdf
47
pdf

https://www.oecd.org/ctp/beps-action-5-agreement-on-modified-nexus-approach-for-ip-regimes.

48 https://www.finance.gov.ie/news-centre/press-releases/minister-finance-publishes-finance-bill-2015
49 https://www.williamfry.com/newsandinsights/news-article/2016/03/02/the-knowledge-developmentbox
50
https://www.rte.ie/news/business/2018/0503/960030-few-companies-availing-of-knowledgedevelopment-box/
51
https://www.irishtimes.com/business/multinationals-exaggerated-research-activity-to-lower-taxbills-1.2337877
52
https://www.maplesandcalder.com/news/article/ireland-a-leading-location-for-holding-andmanaging-intellectual-property-1646/
53 http://www.irishstatutebook.ie/eli/2009/act/12/enacted/en/html
54
https://www.amcham.ie/Amcham/media/SiteMedia/Submissions/Pre-Budget-2015-Submission.
pdf?ext=.pdf
55 Ibid
56
https://www.irishtimes.com/news/ireland/irish-news/multinationals-may-avoid-850m-in-irish-taxfiscal-body-chair-warns-1.3288660

52

 57 http://www.irishstatutebook.ie/eli/2017/act/41/enacted/en/html
58 https://www.oireachtas.ie/en/debates/question/2018-05-16/8/
59 The Financial Times reported in May 2013 that the American Chamber of Commerce submission
to the Irish government suggested Ireland’s attractiveness as a location for IP investment could be
“significantly improved” by scrapping the withholding tax on patent royalties. https://www.ft.com/content/
ee6c1b64-c1f2-11e2-ab66-00144feab7de
60 https://www.oxfamireland.org/sites/default/files/upload/pdfs/mantras-myths-final.pdf, page 6
61 Taxes Consolidation Act 1997, Part 35A, Section 835A to Section 835H http://www.irishstatutebook.
ie/eli/1997/act/39/enacted/en/print#part35
62 http://ec.europa.eu/competition/state_aid/cases/253200/253200_1851004_674_2.pdf, page 94
63 http://www.irishstatutebook.ie/eli/2010/act/5/section/42/enacted/en/html
64 http://ec.europa.eu/competition/state_aid/cases/253200/253200_1851004_674_2.pdf, page 116
65 https://ec.europa.eu/taxation_customs/sites/taxation/files/eu-jtpf-summary_record.pdf
66 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32015L2376
67 http://www.thejournal.ie/apple-tax-ruling-ireland-revenue-2-3199492-Jan2017/
68 https://www.revenue.ie/en/corporate/press-office/annual-report/2016/ar-2016.pdf, page 98
69 https://www.revenue.ie/en/corporate/press-office/annual-report/2017/ar-2017.pdf, page 61
70 https://www.revenue.ie/en/corporate/press-office/annual-report/2017/ar-2017.pdf, page 26

53

 For more information contact:
guengl.communications@europarl.europa.eu

European United Left • Nordic Green Left
EUROPEAN PARLIAMENTARY GROUP

54