EC Probe Could Have “Material” Implications for Apple: An Article Authored by Paul Oliveira, CPA from KLR - Accounting Firm Boston, Massachusetts, Providence, Rhode Island

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EC Probe Could Have “Material” Implications for Apple

posted Jun 30, 2015 by Paul Oliveira, CPA

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The European Commission’s (EC’s) investigation of Apple’s transfer pricing arrangements in Ireland could have a “material” effect on the company.

If it is determined that Ireland’s corporate tax practices amount to illegal state aid, the EC could require Dublin to recover as much as ten years of past taxes from the technology giant.

Apple told the Securities and Exchange Commission that it has been unable to estimate the amount of the potential past taxes but that it could be “material.” Earlier this year, the company said that a tax recovery could adversely affect its cash flow and financial condition.

The commission had expected to complete the investigation into these tax arrangements by the end of the first quarter, but it has delayed that due to difficulty getting relevant information.

The commission indicated that Irish tax authorities have been fully cooperative, but it noted that, although Irish transfer pricing rules have been tightened, the Irish tax administration had a significant degree of discretion in the past.

Such discretion may have been used to reduce Apple’s tax burden below the level it should pay, the commission said. It noted that the number of Irish tax rulings on transfer pricing arrangements is limited.

In a news release, the EC claimed that some EU member states appear to issue advance tax rulings that reduce the tax burdens for some multinational companies. The rulings are used to confirm the size of a company’s future tax bills. The commission has said that it suspects Ireland’s ruling may have granted an advantage to Apple.

The EC stated that it’s investigating whether state aid was involved in the transfer pricing arrangements used to calculate the taxable profit of two Apple subsidiaries. The commission expressed concerns that the calculations used to set the taxable basis could underestimate taxable profit.

State aid is any advantage granted on a selective basis to certain business undertakings. It is generally prohibited in the European Union (EU) unless it is justified by economic reasons.

If your company has received any advance tax ruling from an EU member state, consult with your international tax advisor to help ensure that it will pass EC scrutiny.