EU: Apple gets tax advantage from Ireland

Apple and Ireland are the subjects of an investigation into whether the iPhone maker has received unfair state aid from the Irish government to attract its investment in the country.

The European Commission on Tuesday published a 21-page letter addressed to Irish authorities that digs deep into the financial relationship between the parties. The letter centers on agreements reached between Apple and Ireland in 1991 and in 2007 to establish the ways in which the company's profits would be taxed.

"The Commission is of the opinion that through those rulings the Irish authorities confer an advantage on Apple," EU competition chief Joaquin Almunia wrote in the letter, which was dated June 11. "That advantage is obtained every year and on-going, when the annual tax liability is agreed upon by the tax authorities in view of that ruling."

Almunia also wrote that the advantage is "granted in a selective manner," creating a lower tax burden for Apple compared to similar undertakings.

With a corporate tax rate of 12.5 percent Ireland has become a tax haven of sorts for a range of companies, including tech heavyweights Amazon, Facebook, PayPal, and Twitter. Apple has based its international operations in Cork, Ireland, since 1980, and employs over 4,000 people in the country.

That has led to reports over the last several years detailing how companies use subsidiaries and operations in Ireland to funnel profits through the country to save money. Last year, the US Senate launched an investigation into the matter, and discovered that Apple's Ireland-based subsidiary could be holding as much as 60 percent of the company's profits, despite its headquarters residing in the US. The US government argued that Apple and other companies are sheltering billions of dollars in tax revenue in Ireland.

In the 1991 and 2007 "rulings" mentioned by Almunia, Apple and Ireland agreed to the manner of taxing the company's revenue and profits. According to a report earlier this week, it's believed that Apple pays just a 2 percent tax rate in Ireland, rather than the 12.5 percent standard rate. The difference, Almunia's office argues, is state aid and not tax savings.

That distinction could prove troublesome for Apple. Almunia made clear in his letter that he believes Apple has received "state aid" and that he "has doubts" about its use in the case of Apple. If the EU decides that the state aid was unlawful -- something that it has not yet done and likely would not do for some time -- it could request that Apple pay billions of dollars in taxes for the period between 2004 and 2013.

Before that could happen, however, the Commission -- the executive arm of the European Union -- has requested income statements from Apple for that 2004-13 period. The EU also wants to see if any passive income derives from Ireland, how many full-time employees the company has, and any agreements between the parties.

While neither the Ireland government nor Apple immediately responded to a CNET request for comment on the matter, the Cupertino, Calif.-based company has said in past investigations that it is doing nothing wrong.

In a Senate hearing last year, Apple CEO Tim Cook told US lawmakers that Apple was not using "tax gimmicks" to shelter its profits and acts within the confines of local laws around the world. Earlier this year, Apple CFO Luca Maestri said in an interview to the Financial Times that Apple has no "special deal" in place with Ireland.