Apple tax: European commissioner defends €13bn ruling

Europe’s competition commissioner, Margrethe Vestager, has defended her €13bn (£11bn) ruling against Apple’s Irish tax affairs, hitting back at claims made by a predecessor that EU state aid laws should not be used to fight sweetheart tax deals.

Vestager made clear the rationale for the Apple ruling following comments by Neelie Kroes, who said on Thursday that EU member states have a sovereign right to determine their own tax laws. Kroes served as competition commissioner between 2004 and 2010.

Speaking at a tax conference in Copenhagen on Friday, Vestager said: “Giving a specific tax treatment to a particular company gives that company a benefit just as surely as if it had been handed a bundle of cash. So the state aid rules apply to tax exemption just as much as to any other type of aid.”

Historically, Brussels competition officials have only used state aid powers in limited circumstances, which have not involved private tax deals awarded by member states to multinationals.

The European commission only began using these powers to investigate suspected sweetheart tax deals – including Apple’s agreements with Ireland – in 2014, under Kroes’s successor Joaquín Almunia.

Many tax experts had not anticipated such tax deals would be scrutinised by Brussels as corporate tax has for years been widely considered a sovereign matter for member states.

But Vestager insisted she and Almunia had not moved the goal posts. “This is not new,” she said. “The state aid rules applied since 1958. They are laid down in the treaty and ratified by parliaments in each and every member state.

“It’s never been a secret that tax exemptions could be state aid, and that if so, they’d have to be paid back. The only secret was the tax rulings themselves.”

She pointed out that Brussels gave guidance to member states as long ago as 1998, warning them how tax deals to big businesses might, in some circumstances, risk being classed as state aid. There was also European case law on the treatment of sweetheart tax deals and state aid.

Also on Friday morning, the European commission’s chief spokesman, Margaritis Schinas, separately gave another critical response to Kroes’s remarks at a press conference in Brussels. “We understand it may sometimes be challenging to reconcile the role [held by Kroes] as a former commissioner with the temptation to publicly express the views of those – in Silicon Valley or elsewhere - who oppose the commission’s decisions,” he said.

Schinas’s words appear to have been a thinly veiled reference to the fact that Kroes was appointed to the advisory board of taxi-hailing app group Uber Technologies in May. Uber is based in Silicon Valley and has set up complex tax structures in Europe.

The extent to which private tax deals were being handed out to big multinationals by some European countries was laid bare by the 2014 LuxLeaks scandal. Hundreds of leaked tax deals awarded to large international businesses by Luxmebourg’s tax office revealed companies were able to exploit legal loopholes and access tax rates as low as 1%.

In the case of Apple, vital financial revelations came from a 2013 inquiry into the iPhone maker’s tax affairs by the US Senate’s subcommittee on investigations, then chaired by Carl Levin. For may years, Apple had used unorthodox corporate arrangements to ensure it did not have to file publicly available accounts for its Irish subsidiaries, making scrutiny harder.

Speaking in Copenhagen, Vestager said: “I am often asked why it took so long for us to start investigating tax rulings that go back to the 90s. The answer is that, for a very long time, fiscal secrecy prevailed over transparency.”

Earlier this week, she announced Apple’s tax deals in Ireland were so generous as to amount to illegal state aid. Billions of dollars of income had been flowing through Apple subsidiaries in Cork, attracting tax rates of a fraction of 1%. As a result, the commission ordered Ireland to bill Apple for €13bn in back taxes, plus interest. Apple has said it will appeal against the decision. Ireland is also considering a legal challenge.