State Aid: Tax Benefits To Selected Companies Are İllegal

The European Commission investigated and concluded that Ireland must now recover from Apple the illegal state aid in the form of tax benefits for the period of 10 years (which is approx. EUR 13 billion) plus interest, in spite of the appeal already initiated. Tax benefits provided to selected companies are considered as illegal state aid and prohibited under the EU rules.

While Turkey is still in the process of establishing its own fully operational state aid regime, which should resemble the European one, the Apple decision is important as it gives a clear example of how the rules work in practice and what businesses should be aware of once the Turkish state aid rules are fully in place.

What is a selective tax benefit?

Apple was enjoying a selective treatment in Ireland by way of paying a corporate tax at rate of 1 %  in 2003 that declined down to 0,005% in 2014 according to the tax rulings issued by Ireland. While the tax rulings were legal, the fact that the tax advantage was granted to Apple only constituted the incompatible state aid. Apple was given a better treatment and paid much less tax than other companies.

Sanctions? How much?

There are no fines under the EU state aid rules. There is only a recovery that should restore equal treatment with other companies. Hence, Ireland has to recover from Apple the illegal state aid which is equivalent to the sum of the unpaid taxes in Ireland from Apple for the period of 10 years, i.e. approx. EUR 13 billion, plus interest.

Appeal?

The European Commission’s decision, just as in any other case, may be reviewed by the EU courts. Notwithstanding the appeal already initiated, Ireland must still recover the illegal state aid. Normally, the recovered amount is placed in an escrow account till the outcome of the court procedures.

 State aid in Turkey

Turkey is yet to implement its Law on the Monitoring and Supervision of State Aid and to ensure effective aid measures and proper alignment with the EU acquis by way of enacting its secondary legislation (which is scheduled to enter into force on 31 December 2016 according to the deadline already postponed 4 times).[2] In this respect following the EU practice in relation to state aid is very important as it gives guidance as to how the state aid rules work (in the EU) and will be applied (also in Turkey) in practice.

For more information: info@actecon.com 

[1] http://europa.eu/rapid/press-release_IP-16-2923_en.htm

[2] http://ec.europa.eu/neighbourhood-enlargement/sites/near/files/pdf/key_documents/2016/20161109_report_turkey.pdf

 

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