While financial markets have nosedived because of the pandemic-driven decline in economic activity, neither Apple nor Ireland will have to make up losses in the €14.3 billion escrow fund established for the company’s alleged tax liability.
In 2016 the European Commission ruled that Ireland had conferred illegal state aid on two Apple Inc. subsidiaries by way of advance pricing agreements that resulted in the entities owing almost no corporate tax. EU treaties prohibit member states from providing businesses with selective advantages that distort both trade and competition within the bloc. The commission ordered Ireland to recover the illegal aid. Both Ireland and Apple have challenges of the decision pending before the EU General Court.
A spokesman for Ireland’s National Treasury Management Agency (NTMA) confirmed a comment made by his agency’s chief executive, Conor O’Kelly, in July 2019 that neither Apple nor Ireland would have to make up any difference between the amount deposited by the company and what remains in the escrow fund when the courts hand down their final decision on the case. “The fund has been structured in a manner that is consistent with Ireland’s obligations in respect of the alleged state aid recovery process,” he said.
In July 2019 the commission issued a Notice on the Recovery of Unlawful and Incompatible State Aid that said if amounts held in an escrow account come up short when an EU court issues its final determination on a legal challenge, none of the parties to the case have to make up the losses.
The NTMA spokesman declined to answer a question about whether the funds in the escrow account have changed in value since they were deposited. He said the NTMA had previously disclosed that the net assets in the fund totaled €14.269 billion at the end of 2018.
In its annual report for 2018, which was published in July 2019, the NTMA said the fund’s assets are invested in “low-risk, highly rated euro-denominated fixed income securities, predominately short- to medium-term sovereign and quasi-sovereign bonds,” adding, “The investment objective is to preserve capital to the greatest extent possible in light of prevailing market conditions.”
A manager of a Chicago-based asset management company said the funds would likely have been invested in something similar to the Bloomberg Barclays Euro-Aggregate Government 1-3 Year TR Index. “If the investments were short- to medium-term and government securities, then in this environment, that is where the money likely flowed, so the downside couldn’t have been meaningful,” said the manager, who asked not to be identified. “Year to date, that index was down 0.6 percent.”
When the commission announced its decision in the Apple case, it said the amount could be reduced if other countries were to assess taxes on the income. In January Apple disclosed in its first-quarter financial report that its alleged state aid liability had been lowered by around €200 million because of “certain taxes paid to other countries.” The company didn’t name the countries to which it had paid the taxes.