How the structure worked and what will happen next

QHow does Apple’s structure work? AThe

European Commission’s investigation has centred on Apple’s complex Irish tax structure, and in particular two subsidiaries in the country.

The first, Apple Sales International, a subsidiary in Ireland, books all sales of iPhones, iPads and so on in Europe, Africa, the Middle East and India. But almost all of its profits are allocated to a “head office” without any staff or physical location.

A second company, Apple Operations Europe, the Irish subsidiary that makes Apple Mac computers in Ireland, uses a similar structure. The Commission said that deals with the Irish government allow both subsidiaries to pay minimal taxes in Ireland, with the only major payments being billions in R&D costs to Apple’s US headquarters. The rest is accumulated in cash until Apple decides to bring it back to the US.

QWhy does the European Commission say it is illegal? AEuropean

competition law forbids a country from giving one company an advantage over another when it comes to taxes, and the Commission says Ireland gave Apple a deal that was not available to others.

It says the deal amounts to a tax rate as low as 0.005pc between 2003 and 2014, compared to Ireland’s typical 12.5pc corporation tax rate. It now wants Ireland to recoup the sum, which it says would wipe out the financial advantage Apple enjoyed.

Although the Commission said the illegal structure had been in existence for years, it is only able to order that Ireland recoup funds from 2003 – a decade before it started its probe.

QWhat does Apple say? AApple

believes it should pay corporation taxes on its profits in the US, since that is where its products are researched and invented. It wants to repatriate its swelling overseas cash pile, much of which moves through Ireland, but is waiting for US tax reform.

Apple says there was no special deal and that it has complied completely with Irish tax law. It also accused the EU of trying to replace the country’s laws with “a view of what the Commission thinks the law should have been” – part of the ongoing row between the US and Europe over Brussels overreaching.

QWhat happens now? ABoth

Apple and the Irish government say they will appeal the ruling in the European courts, which could lead to years of legal wrangling. Similar decisions taken about Fiat and Starbucks about alleged sweetheart deals are currently being appealed.

Although it may be scuppered by the appeal, it is the Irish government’s responsibility to recoup the €13bn plus interest from Apple – the EU itself cannot order tax payments. The sum could be altered if, for example, other member states choose to charge Apple more taxes or if the US argues more should be paid to finance R&D.

Meanwhile, Apple hopes the US will pass tax reform next year that will allow it to repatriate its overseas funds.

‘ [The ruling is] a view of what the Commission thinks the law should have been’