A head-on clash is in prospect in the European courts over the European Commission's Apple ruling, according to a briefing document published late yesterday, ahead of today's Dáil debate.

The Government is insistent that Irish tax law allowed the Revenue Commissioners to tax only profits attributable to Apple’s Irish branches.

Artificial

The commission argues otherwise, saying that Apple and Ireland came up with an artificial arrangement which effectively allowed the multinational to flow profits earned in Europe through Ireland, without the money being taxed here – or anywhere else.

Central to this is the structure that Apple used in the two key companies concerned – Apple Sales International and Apple Operations Europe.

Both companies were split into an Irish branch and an offshore head office. Most of the profits were attributed to the head office.

The Irish side argues that this split was reasonable and that Irish tax law only allows it to tax profits attributable to the Irish branches “by reference to the facts and circumstances”.

The commission takes a different view. Its analysis was that the Revenue signed off on an artificial construct. The Irish side says this split, agreed with the Revenue, merely reflects the fact that most of the Apple profit was generated overseas – and is thus not taxable here.

However, the European Commission has decided that the head office "existed only on paper and could not have generated such profits."

They had no economic substance. These profits that were allocated to the head office were not subject to tax in any country, as these companies had no tax residency.

This was not a “market based outcome”, according to the commission. It was selective tax treatment of Apple and was thus illegal.

The Government will argue that the commission is wrong in law and that the tax rulings at the centre of the decision – allowing the income split between the head office and branch companies – were reasonable.

It will also point to the commission’s statement that some of the income may, in fact, be taxable elsewhere in Europe as “entirely unprecedented”.

The document does not reveal the precise way the commission came to its figure of €13 billion.

But the thinking in Brussels is clear – it was that Apple’s income earned in Europe should have been taxed somewhere, and that if this had not been done elsewhere Ireland should have collected the money.