Apple will be accused of prospering from illegal tax deals with the Irish government for more than two decades when Brussels this week unveils details of a probe that could leave the iPhone maker with a record fine of as much as several billions of euros.
Preliminary findings from the European Commission's investigation into Apple's tax affairs in Ireland, where it has had a rate of less than 2 per cent, claim the Silicon Valley company benefited from illicit state aid after striking backroom deals with Ireland's authorities, according to people involved in the case.
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Apple, which has operated in Ireland since 1980, maintains that its agreements with Ireland did not break any laws. "There's never been any special deal, there's never been anything that would be construed as state aid," Luca Maestri, Apple's chief financial officer, told the Financial Times.
The attack on the tax practices of the world's richest company follows last year's US Senate hearings, where it emerged that Apple shifted billions of dollars in profits out of the US to international subsidiaries with no declared tax residency. Apple says it pays all the tax it owes.
Based on its concerns, the commission has decided to open an in-depth investigation of arrangements between Apple and the Irish authorities dating back to 1991. It is part of a wider crackdown on what JoaquÃn Almunia, the EU's competition commissioner, has called "aggressive" multinational tax avoidance.
Brussels is also investigating similar deals between Starbucks and the Dutch government, and Fiat Finance and Trade, the financial arm of the automotive group, with Luxembourg.
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EU investigators rest their case on whether Apple negotiated special tax treatment in Ireland that other companies do not enjoy.
"We were simply trying to understand what was the right amount of taxes that we would have to pay in Ireland," Mr Maestri said of the agreements, describing Apple's approach as "very responsible, transparent and prudent".
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Legal curbs on state aid to companies are unique to the EU and Brussels has far-reaching powers to recover illegal support stretching back 10 years. While the commission has not yet made a precise calculation of improper support, it is expected to reach billions of euros.
The accusation that Apple rode to riches totalling $137.7bn in offshore cash with the help of the Irish taxpayer will come as a blow to a company that has striven to burnish its image of corporate social responsibility in recent years.
In an exclusive interview with the FT ahead of the report's publication, Mr Maestri called the investigation "very unfortunate".
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He denied that the world's most valuable company had agreed any "quid pro quo" to bring more jobs to Ireland in exchange for preferential tax treatment of its local subsidiaries.
"We know that we didn't do anything that was against the law and we are very confident that through the investigation it will be shown that there was no selective treatment in our favour at any point in time," Mr Maestri said.
The case hinges on two agreements between Apple and the Irish tax authorities, which the commission will argue amounted to special treatment because they did not meet the standards of an arms-length transaction between corporate subsidiaries.
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After operating in Ireland tax-free since 1980, in 1991 Apple sought a meeting with the Irish authorities after a change in the law, Mr Maestri said. The resulting agreement lasted until 2007, an unusually long time for so-called transfer pricing agreements.
In 2007, after Apple's sales and operations had expanded considerably, Ireland approached Apple to revise its tax arrangements to reflect the growth and new functions. Mr Maestri said it again sought an "advanced opinion" that would provide "complete certainty" about its tax liabilities.
The company has invested $100m in its Irish operations in recent years, he noted, and is among Cork's biggest employers.