EU’s Apple ruling - Will Europe’s ‘Vodafone’ moment unleash a global tax war?

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In one of the most controversial moments in the war on corporate tax avoidance in recent times, the European Commission (executive arm of EU) has ordered Ireland to recoup Euros 13 billion in back taxes plus interest from Apple after ruling that a special tax arrangement to route profits through Ireland was illegal state aid. This landmark ruling (which is being seen by USA as an assault on the international consensus via BEPS on tackling tax avoidance) has certainly complicated international tax diplomacy. In a defiant statement, the tech-giant has accused the European Commission of launching “an effort to rewrite Apple’s history in Europe” and “upend the international tax system”. For us, Indians, it is but a striking reminder about India’s own “Vodafone” moment triggered by retrospective amendments to the tax law relating to indirect transfers which also sent the global tax fraternity into a tizzy.

Does this historic verdict pave the way for an international political and financial dispute over the European Commission’s role and authority? Will Europe’s “Vodafone” moment unleash a global tax war? Does this ruling cast a murky shadow over the implementation of BEPS?

T.P. Ostwal
(Senior Partner , T P Ostwal & Associates)

After the BEPS action plan it is bound to happen and that is CLEAR INDICATION OF A CRACK in action plan as interested countries will not agree to such unilateral measures and hence be prepared for BEPS II

Dinesh Kanabar
(CEO, Dhruva Advisors LLP)

EU slapping 13 bn euro bill on Apple for back taxes. Quite a historic development!! Individual country vs EU policies!! And now it is USA vs. EU!! This fight is going to spill over and many other MNC will be impacted. All those who have perked funds in Ireland like GE, Google, etc could face similar consequences!! In some sense a tax war emerging".

 

Gautam Mehra
(Tax Head , PwC)

The EC clearly has the authority to investigate whether tax regimes and specific agreements constitute state aid. However with the EC now questioning agreements concluded between governments and taxpayers, we have entered new and uncharted territory and this has created some considerable uncertainty. This decision by the EC is likely to be appealed, so this uncertainty will continue until we see the final judgment from Court of Justice of the European Union. The strong US reaction to the announcement reminds us that the tax reform agenda is international. Implementing the OECD's recommendations in future tax systems, whilst maintaining the ability to use tax and broader policies to attract business and investment, will be an important balance for many Governments around the world. 

 

Rajendra Nayak
(Partner, International Tax Services, Ernst & Young LLP)

Recently, the European Commission initiated a series of State aid investigations primarily involving U.S.-headquartered companies that had obtained tax rulings from EU Member States. The Commission’s State aid investigations, if continued on their current trajectory, have considerable implications for international taxation and multi-national enterprises with EU operations. Where State aid involves impermissible subsidies provided through the tax system, the Commission requires the Member State to recover the amount of tax that, in the Commission’s view, should have been imposed in the first place. These amounts can be significant, since the Commission can require recovery for up to ten prior years, with interest for the period the illegal aid is granted until the aid is recovered. Because the Commission’s approach in the State Aid Cases is new and was not foreseeable by the relevant companies, recovery of past allegedly unpaid tax would constitute retroactive enforcement of a newly adopted approach to State aid. With no indication of the Commission’s new approach, taxpayers have been receiving rulings from EU Member States for decades and had no reason to doubt their legality. Governments worldwide understand and share the Commission’s strong interest in preventing multinational companies from achieving double non-taxation. But the...

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Vipul Jhaveri
(Managing Partner - Tax, Deloitte Haskins & Sells LLP)

The principle enunciated in BEPS Action Plan of taxing profits where economic activity takes place and value gets created has got tested in the Apple Ruling. Also, what’s interesting is the Commission propounding previously unarticulated theories on impermissible State aid arising from State’s tax policy and rulings, which hitherto was generally assumed permissible, and applying it to past years which in effect is retroactive. The Apple Ruling may well pave way for the New Tax Order that is evolving for the MNEs

Porus Kaka
(IFA President & Sr. Advocate)

There seems to be a Trans Atlantic tax war brewing.  The Apple decision of the European Commission is today one of the largest tax claims ever.  The decision is at the prism of a conflict between a country’s sovereign right to levy taxes (in this case Ireland) and its commitments to a Union of States, not to encourage illegal State aid and therefore infringe competition.  The issue stems from a Ruling that Ireland provided that allowed Apple to reduce its effective rate of tax in the EU.  It is also coming at a time when the European Union is significantly taking the proactive state against what is perceived as Tax Avoidance. To prevent such Rulings BEPS Action 5 of the OECD is being worked upon.  The last has not been written on this and now case will proceed to the General Court of European Union in Luxembourg and then to European Court of Justice.

 

P. V. Srinivasan
(Corporate Advisor)

The “Double Irish Dutch Sandwich” structure put in place by US Corporations has received its first blow.  The European Commission (EC) verdict on the preferential tax regime allowed by Ireland to Apple is indeed unprecedented since the tax bill of Euros 13 billion is not a result of any claim of Ireland.  Ironically, no country wanted the tax and yet the tax is imposed!  At first glance, it may appear to be a ruling which encroaches on the sovereign taxation powers of Ireland as a member of EU.  If one looks at the regime holistically, it is the application of EU Directives which has allowed segmenting royalty streams within EU in a tax neutral manner.  

The EU verdict is possibly on the premise that intangibles of Apple were residing in Ireland on account of pre-concluded cost sharing agreement between Apple Inc., US and its subsidiary in Ireland.  Cost sharing agreement is governed by US regulations.  Ireland was only a beneficiary of the US regulations.  If at all any country could be aggrieved by the tax arrangement of Apple, it is the US.    Further, the US has allowed loopholes in its Controlled Foreign Corporation regulations to remain...

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