Apple tax fallout could hit home

Australian firms that accept cozy deals to invest in Europe face the risk of big tax bills after the Apple ruling.

The EC’s ruling on Apple’s tax bill may have implications for Australian companies operating overseas.

Australian companies that accept cozy deals from revenue authorities to invest in Europe face the risk of punishing tax bills following a European Commission ruling that tech giant Apple must pay up to $19 billion over its arrangement with Ireland, a leading tax expert says.

On Tuesday night, the commission made a landmark ruling that “selective treatment” that reduced Apple’s Irish tax rate from an already low 12.5 per cent to as little as 0.005 per cent “did not ­correspond to economic reality” and was “illegal under EU state aid rules” because it advantaged the US company over other busi­nesses.

The commission’s decision leaves Australia scrambling for a position as the EU and US ramp up a stoush in which the EU is ­attempting to grab a share of the profits US tech giants run up in Europe while the US tries to preserve its ability to decide when and if its companies pay it any tax.

“Both the US and countries like Australia strongly believe they have the high moral ground here,” said Niv Tadmore, a tax partner at law firm Clayton Utz.

“The US says it is American income and leave it alone.

“Australia would say, however, this is at least in part Australian income ­because we are the ones who buy the products.”

Miranda Stewart, who heads the Tax and Transfer Policy Institute at the Australian National University, said the European Commission could claw back up to 10 years worth of state aid.

“It’s certainly a risk that any Australian company going into a country where they’ve made those administrative agreements may be subject to scrutiny,” Professor Stewart said.

The government-controlled Future Fund is among Australian companies to cut special deals with EU member Luxembourg, with the statelet’s “tax wizard”, Marius Kohl, approving a complex structure to set up an investment fund worth up to €350 million in 2010.

Mr Kohl also approved deals for a Macquarie Group real estate fund, an AMP infrastructure fund and a Goodman structure designed to finance property development in Poland, according to documents forming part of the “Luxleaks” trove that made headlines around the globe when it was released in late 2014.

Babcock & Brown and Allco also received special treatment but have since gone broke.

The EC has said it has two investigations under way into the Luxembourg deals enjoyed by US companies Amazon and McDonald’s, but has not made a statements about any Australian companies.

Any tax bill for the Future Fund would be particularly unwelcome because, as a government-owned entity, it pays no tax in Australia.

Spokespeople for the Future Fund and Goodman did not return The Australian’s calls, while a spokeswomen for Macquarie and AMP declined to comment.

Other Australian companies with a stake in Europe include the Lowy-family controlled Westfield Corporation, which owns two shopping centres in Britain and another under development in Milan, the James Packer-controlled Crown Resorts, which owns London casino Aspinalls, and building products company James Hardie, which remains listed on the ASX despite leaving the country for tax reasons in 2001 — first to The Netherlands and then, in 2010, to Ireland.

In making the Apple decision, the EC ignored a warning from the US Treasury Department last week that its investigations into allegedly dodgy tax deals by European states undermined a global crackdown designed to stop the leakage of revenue from the tech sector. Any outcome forcing payment of more tax by US companies would be “deeply troubling, as it would effectively constitute a transfer of revenue to the EU from the US government and its taxpayers”, the US Treasury said last Wednesday.

Apple disputed the reasoning of the EC’s decision and said it would appeal. Apple chief executive Tim Cook, in an open letter, added: “Apple follows the law and we pay all the taxes we owe.”

Clayton Utz’s Dr Tadmore said the widening rift could hurt the international base erosion and profit shifting (BEPS) being run by the Organisation for Economic Co-operation and Development.

“The USA warning seems to mark a new source of tension between the USA and OECD countries,” he said. “I don’t see it going away and it is the most obvious fracture in the OECD BEPS harmony.”

“The USA’s long-standing tax policy position is threefold: this is American income, it is up to the USA when and if to tax it and, ­finally, other countries have no right to tax it even though they are the markets of the products.”

He said this position was only likely to harden once the Obama administration ended in January next year.

Professor Stewart said the EU rules against state aid had traditionally been targeted at direct grants or subsidies.

“Some years ago the commission began investigating administrative rulings in the tax area — Ireland and The Netherlands have been under scrutiny,” she said.

She said that even though the commission ruled Apple must pay the tax, it was Ireland’s conduct that was under scrutiny.

Ireland can appeal against the ruling in the European Court of Justice, but must first collect the tax bill, which relates to the years from 2003 to 2014, from Apple.