THE State could be forced to collect an unwanted windfall worth billions of euro if Apple is forced to pay legacy taxes following a probe into its affairs by Brussels.
The possibility of a repayment comes as the European Commission explains today why it has begun a detailed investigation into tax deals between the Revenue Commissioners and Apple stretching back to the 1990s.
The Government has resisted the investigation and said repeatedly that Apple has no case to answer.
A finding that Apple had been given illegal state aid would be an embarrassment to the Government here and weaken Ireland’s hand as the international community cracks down on tax avoidance measures.
It could also trigger further probes that would shine a light on how Ireland has convinced so many tech companies to set up shop here.
A US Senate investigation into Apple’s tax affairs in 2013 found that the world’s most valuable company used Irish-registered businesses that were not tax-resident in any country, thereby sheltering tens of billions of dollars in profit from tax.
Apple’s operations in Cork have allowed the company to operate almost tax-free in Ireland since 1980 thanks to tax holidays and other deals. That has saved Apple tens of billions of euro, according to some calculations.
A Commission source close to the investigation told the Irish Independent that some repayment of unpaid taxes was now likely, although they declined to speculate on the figures involved. The fresh probe by the Commission could take 18 months and be open challenge in the courts.
Both Taoiseach Enda Kenny and Apple chief executive Tim Cook say the company did not get a special deal with the Revenue Commissioners.
The European Commission will effectively say today that Mr Kenny's assurances to the Dail are not enough to stop a full investigation.
The Government has again resisted claims that Apple had a sweetheart deal with the Revenue Commissioners.
But Tanaiste Joan Burton gave a far less emphatic denial than the Taoiseach's previous comments, saying only that she "would anticipate and hope" that tax arrangements with Apple are compliant.
"If changes are required we will obviously address whatever recommendations are made in the commissioner's report," she added.
The Department of Finance reiterated yesterday that it "is confident that there is no breach of state aid rules in this case." The Government "already issued a formal response to the commission earlier this month, addressing in detail the concerns and some misunderstandings" in the EU's June decision announcing the probe, it added.
The probe comes at a tricky time for the State. While no other country has taken aim at the 12.5pc corporate tax rate, many are unhappy with other parts of our tax code such as transfer pricing transfer, the setting of prices for intra-group transactions.
The Paris-based Organisation for Economic Co-operation and Development said last month that our tax rules would have to be reformed to effectively outlaw the so-called 'Double Irish' tax avoidance scheme which is popular with tech companies such as Google.
US President Barack Obama's administration has meanwhile banned so-called tax inversions which made it lucrative for some US pharmaceutical companies to buy smaller Irish companies and move their base here to avoid US taxes.
While both measures may still fail, they highlight the challenges faced by the Government as it battles to keep foreign companies in Ireland.
Apple chief executive Tim Cook faced fierce criticism from a Senate subcommittee in Washington last year over the iPhone maker's tax practices, which had been shrouded from full view behind secretive tax-exempt Irish-based corporate entities.
The European Commission probe will hinge on two periods of intense talks between Apple and the Revenue Commissioners in the early 1990s and again in the latter parts of the last decade. Apple says it went to the Revenue Commissioners looking for guidance on how it should pay its taxes.
Deals around transfer pricing are complex and companies regularly seek guidance from the authorities on how to pay their taxes.
Senator Carl Levin, chairman of the US Senate subcommittee looking into Apple's tax affairs, said in May last year that Apple had sought "the Holy Grail of tax avoidance".
A former company executive and Irish officials told Reuters the almost tax-free status dates all the way back to Apple's arrival in Cork 33 years ago.
"There were tax concessions for us to go there," said Del Yocam, who was vice-president of manufacturing at Apple in the early 1980s. "It was a big concession." Apple paid no taxes for the first 10 years in Ireland, he added.
Apple's investment was a major coup for Ireland. At the time, the country was struggling with high and rising unemployment, double-digit inflation and a brain drain of the young and educated through emigration.
Ireland is not the only country under the cosh.
This morning, European Union regulators will provide more details of their reasons for launching in-depth inquiries into the tax arrangements reached by both the Irish Government and by Luxembourg with a Fiat subsidiary.
The European Commission has launched a similar investigation into the Dutch government's tax treatment of Starbucks, but details of that will be published later, Euroepan Commisison spokesman Antoine Colombani said.
On Ireland, he added: "In this case, we have doubts that through tax rulings a company may have been granted selective treatment, preferential treatment, compared with what another company under the same rules, the general rules of the Irish tax system, would have received."
Some tax lawyers told Reuters they doubted whether the Commission could force Apple to repay taxes and said that it was more likely that Ireland would be forced to change its light-touch approach to taxing multinationals.
Asked to comment yesterday, Apple reiterated its June statement, saying it had not received any selective treatment.