The European Commission’s ruling against Apple’s tax arrangements in Ireland focuses on the particular corporate structure the US multinational used here. This structure was different in one key respect to that used by most other multinationals, even if the tax advantages which accrued were much the same.

Central to this is that Apple undertook key transactions within companies located here – rather than between two different subsidiaries. They did not use the traditional double Irish structure involving two companies – instead they used why you might call a "single Irish", conducting key transactions within one company.

It may seem a subtle point, but it appears to be central to the commission’s decision.

To understand this, a bit of background is necessary. US multinationals here have typically used Irish-registered subsidiaries to take in the revenue from sales across Europe – and beyond in some cases. They have done this in a way which has sheltered much of this income from Irish corporation tax. Apple achieved this in a way that was slightly different to most of the other big tech players who have established here, even though the outcome was very similar.

Central to most of these structures – though not Apple’s – was the “double Irish”, the rule that allowed multinationals to register companies in Ireland but have them resident for tax purposes elsewhere. The double Irish is being phased out by 2020.

Intellectual property

Most multinationals worked the double Irish like this. They established one company registered in Ireland but tax resident elsewhere, often in a tax haven such as the Bahamas or Cayman Islands. This company “owned” the intellectual property (IP) rights for sales in Europe. In other words, it had an asset which represented all the research, development and marketing work done on whatever product was involved.

Typically, the multinational then had a second Irish company which took in the revenue from across Europe. This second company paid the first one a charge for the use of the IP . This charge usually represented a significant portion of revenue and so the profits declared by the second company – the one tax resident here – were typically low and most of the cash ended up in the company which was tax resident offshore.

This then left the US multinational with a pot of money sitting in a company tax resident offshore.

In this way, US companies especially have built up huge pots of cash that they usually keep offshore as, if they return them to the US, they would then typically be exposed to fairly onerous US corporation tax rates.

Apple’s structure here differed from the norm in one vital respect. There are two companies involved in the Commission decisions which are registered here, with the judgment referring to Apple Sales International and Apple Operations Europe. But, unlike most other multinationals, Apple did not put its IP for Europe and other non-US markets in a separate company.

Apple Sales International

Let’s look at one of the companies, Apple Sales International, which is the key player involved. Apple split the company into two “bits” – an Irish branch and an offshore head office, which was tax resident nowhere for the period under investigation. The IP was owned by the headquarters office. Apple, like other multinationals, levied a big charge on the profits earned elsewhere in Europe to account for the IP – the cost of developing its products – and used this to reduce the Irish tax on its earnings from Europe and beyond to very low levels.

But unlike the other big players it was moving money around within two bits of one company, rather than between two separate companies. And the agreement with the Revenue Commissioners that allowed Apple to allocate profits between an Irish branch and a headquarters all within one company was central to the commission’s adverse finding. It found that this was artificial and conferred a selective benefit to Apple – in other words it gave it a particular advantage not available to others.

Tax experts believe that had Apple used a traditional double Irish structure – moving money between companies rather than within them – it would probably have avoided the negative finding, which getting similat tax benefits. The full details of the Commission’s ruling may tell us more here.

Still, what we know invites two further questions. The first is whether other companies used the same structure as Apple. This is not clear, but tax experts here believe the vast majority availing of the traditional double Irish used the two-company structure.

The second question is whether the commission might look at the more traditional double Irish structure and examine how it was worked? So far it has not looked at other Irish companies and the fact the double Irish is being phased out may also be a factor.

Irish-based tax experts say the traditional double Irish structure would not, in most cases, have required the companies involved to seek an opinion from the Revenue. And it is the Revenue opinion which is central to the finding of illegal state aid having been conferred on Apple.

Why Apple’s Irish structure was slightly different to that used by most other companies is not clear. It may relate to historic corporate structures dated back to its establishment here in the 1980s. The effect of what it set up was exactly the same as the more traditional structure used by many other multinationals. But the commission has judged that Ireland offered it illegal state aid, highlighting – according to what we know so far – the specific details of how Apple’s peculiar structure worked. In this case, at least, the double Irish might have been better than the single.