EN Official Journal of the European Union L 187/1

COMMISSION DECISION (EU) 2017/1283

of 30 August 2016

on State aid SA.38373 (2014/C) (ex 2014/NN) (ex 2014/CP) implemented by Ireland to Apple

(notified under document C(2017) 5605)

(Only the English text is authentic)

(Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union, and in particular the first subparagraph of Article 108(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments pursuant to the provisions cited above (1) and having regard to their comments,

Whereas:

1. PROCEDURE

(1) By letter of 12 June 2013, the Commission requested Ireland to provide information on its tax ruling practice (2). In particular, the Commission requested information on any rulings granted by Ireland in favour of the Apple Group companies Apple Operations International (hereinafter: ‘AOI’), Apple Sales International (hereinafter ‘ASI’) and Apple Operations Europe (hereinafter: ‘AOE’). The Commission also requested an illustrative list (at least five examples) of Irish resident companies or permanent establishments of foreign companies which benefitted from tax rulings for similar activities in Ireland.

(2) By letter of 9 July 2013, Ireland submitted the requested information to the Commission. Ireland indicated in its letter that the Irish tax administration (hereinafter: ‘Irish Revenue’) had issued rulings to non-resident companies in relation to the allocation of profits to their Irish branch in nine cases. Those cases included the following nine companies: Company [A] (*1), Company [B], Company [C1], Company [D], Company [E], Company [F], Company [G1], Company [G2] and Company [G3].

(3) By letter of 26 August 2013, the Commission requested the rulings issued by Irish revenue to those nine companies. It also requested all rulings issued in years 2010, 2011 and 2012 by Irish Revenue. On 25 September 2013, Ireland provided the rulings issued to the nine companies, as well as the rulings issued in years 2010, 2011 and 2012, the latter of which contained a small number of advanced pricing agreements (hereinafter: ‘APAs’), including bilateral APAs.

(4) By letter of 21 October 2013, the Commission requested Ireland to provide the rulings issued by Irish Revenue in 1991 and 2007 in favour of ASI and AOE and all essential elements supporting the requests to Irish Revenue to obtain those rulings, in particular, underlying reports of the companies' tax advisor. The Commission also requested information regarding all Apple Group companies tax resident in Ireland, including all rulings in force and the tax returns of those Apple Group companies in Ireland for the years 2010, 2011 and 2012. On 21 November 2013, the Irish authorities submitted the requested information including the rulings of 1991 and 2007 issued in favour of ASI and AOE and the tax returns of the nine companies listed in recital 2.

(5) By letter of 24 January 2014, the Commission requested an explanation of the rulings provided by Ireland on 25 September 2013. The Commission also requested Ireland to provide all rulings on profit allocation issued since 2004 and all rulings issued prior to that date and still in force, as well as all essential elements supporting those rulings.

(6) On 6 March 2014, Ireland provided additional rulings on profit allocation in relation to companies whose requests were dealt with by Irish Revenue's ‘Large Cases Division’. Ireland provided the rulings, a copy of the correspondence received by Ireland from the company or its tax advisor setting out the basis for the ruling request, and a copy of the reply by Irish Revenue. That information was provided for ten companies: Company [H], Company [I], Company [C2], Company [J], Company [K], Company [D], Company [L], Company [M], Company [N] and Company [O] (3). Ireland further indicated that information in relation to Company [K] had been included in a previous reply.

(7) By letter of 7 March 2014, the Commission informed Ireland that it was investigating whether the tax rulings issued by Irish Revenue in 1991 and 2007 in favour of ASI and AOE constitute new aid and it invited the Irish authorities to comment on the compatibility of such aid. Noting that the Commission had already requested, by letter of 21 October 2013, all essential elements supporting those rulings, the Commission invited Ireland to provide any additional information related to the tax arrangements endorsed by those rulings, as well as the tax returns of Apple Group companies in Ireland. On 25 March 2014, Ireland submitted the tax returns of ASI and AOE for the years 2004 to 2010.

(8) By letters of 1 and 28 May 2014, the Irish authorities raised concerns that discussions between the Commission and the Organisation for Economic Cooperation and Development (hereinafter: the ‘OECD’) may have led to the disclosure of confidential taxpayer information. By letter of 6 June 2014, the Commission responded to those concerns by explaining that the discussions between the Commission and the OECD were of a general nature and that no confidential taxpayer information had been disclosed to the OECD.

(9) On 11 June 2014, the Commission adopted, in accordance with Article 108(2) of the Treaty, its decision to open the formal investigation procedure into the 1991 and 2007 tax rulings issued by Irish Revenue in favour of ASI and AOE on the grounds that those rulings could constitute State aid within the meaning of Article 107(1) of the Treaty (hereinafter: the ‘Opening Decision’).

(10) By letter of 5 September 2014, Ireland submitted its comments on the Opening Decision.

(11) On 17 October 2014, the Opening Decision was published in the Official Journal (4), whereby interested parties were invited to submit their comments on the Commission's investigation. By letter of 17 November 2014, the Commission received comments from Apple. Attached to those comments was an ad hoc profit allocation report prepared by its tax advisor [Apple's tax advisor] (hereinafter: ‘the [Apple's tax advisor] ad hoc report’). Comments were also submitted by Ibec (5) and Oxfam and a joint letter was submitted by several trade organisations (6).

(12) On 9 January 2015, a meeting took place between the Commission's services and representatives of Apple, during which Apple explained its new corporate structure in Ireland to the Commission. By email of 19 January 2015, Apple submitted a summary of the key elements of Apple's […] restructuring in Ireland to the Commission as a follow-up to the meeting of 9 January 2015.

(13) On 30 January 2015 and 11 March 2015, Ireland submitted its observations on the third party comments received by the Commission in response to the Opening Decision.

(14) By letter of 4 February 2015, the Commission requested Ireland's views on Apple's new corporate structure in Ireland, as well as all written exchanges between Irish Revenue and Apple regarding that new corporate structure. Ireland replied to that request by letter of 25 February 2015 and provided the requested written exchanges and notes of a conference call of 11 December 2014 between Irish Revenue and Apple. In addition, Ireland asked the Commission to further clarify some aspects of its investigation into the 1991 and 2007 tax rulings which, according to Ireland, seemed to be based on a misapprehension by the Commission as to the applicable national law.

(15) By letter of 5 March 2015, the Commission sent a request for information to Ireland which related to information on the interest income reported in ASI's and AOE's financial accounts and the allocation of that income within ASI and AOE. In addition, the Commission requested information on the management of the intellectual property licences held by ASI and AOE for the procurement, manufacturing, sales and distribution of Apple products outside of the Americas (hereinafter: the ‘Apple IP licences’) and whether employees of the Apple group were involved in such management. Ireland replied by letter of 15 April 2015, providing all the requested information, including an annex submitted by Apple. In a second letter sent on the same day, Ireland agreed to a meeting with the Commission.

(16) On 17 April 2015, the Commission sent a letter to Ireland responding to the latter's request of 25 February 2015 to clarify certain aspects of its investigation into the 1991 and 2007 rulings (hereinafter: the ‘letter of 17 April 2015’). The Commission requested Ireland to forward a copy of that letter to Apple.

(17) On 22 April 2015, a meeting took place between the Commission services and Apple. Ireland was present at that meeting, which focused on the allocation of profit within ASI and AOE.

(18) By email of 23 April 2015, the Commission invited Apple to comment on the letter of 17 April 2015. In addition, the Commission requested Apple to provide the minutes of the meetings of ASI's board of directors for the same period for which board meeting minutes of AOE's board of directors had previously been provided.

(19) By letters of 4 May 2015, Ireland and Apple replied to the letter of 17 April 2015. On 7 May 2015, Apple's letter was forwarded to Ireland for comment.

(20) On 7 May 2015, a meeting took place between the Commission's services and Ireland.

(21) On 20 May 2015, Ireland commented on Apple's observations on the letter of 17 April 2015.

(22) On 27 May 2015, Apple submitted all the minutes and resolutions of both ASI's and AOE's board of directors for the requested period in response to the Commission's email of 23 April 2015.

(23) By email of 9 July 2015, the Commission sent the draft minutes of the meeting of 7 May 2015 to Ireland and invited Ireland to agree or propose changes to those minutes.

(24) On 17 July 2015, Ireland replied to the Commission's email of 9 July 2015 stating, in particular, that it did not consider the draft minutes to present an accurate or comprehensive record of the 7 May 2015 meeting. Ireland submitted its observations on the meeting and reiterated arguments expressed in its letter of 4 May 2015. In addition, Ireland attached an opinion prepared by Hon. John D. Cooke (hereinafter: the ‘Cooke opinion’). By letter of 28 July 2015, the Commission responded to Ireland's letter of 17 July 2015.

(25) By letter of 14 August 2015, Ireland provided its comments on the minutes of the meeting on 7 May 2015.

(26) By letter of 7 September 2015, Apple provided its comments on the minutes of the meeting on 7 May 2015. Apple also submitted an opinion prepared by Professor [Apple's advisor] (hereinafter: the ‘[Apple's advisor] opinion’).

(27) By letter of 11 November 2015, the Commission requested Ireland to provide further clarification on the activities of ASI, AOE and Apple Distribution International (hereinafter: ‘ADI’) to better understand the functions performed and the risks borne by ASI's and AOE's head offices and their respective Irish branches.

(28) After several exchanges of letters between Ireland and the Commission on 25 November 2015, 27 November 2015 and 2 December 2015 regarding the scope of the request for information and the deadline to reply, Ireland provided part of the requested information by letter dated 8 December 2015. In that letter, Ireland also indicated that the missing information would be submitted later and that Apple is working on compiling the information requested. It also expressed its concerns in that letter about the manner in which the investigation had proceeded.

(29) On 21 January 2016, a meeting took place between the Chief Executive Office of Apple Inc. (hereinafter: ‘Apple's CEO’), Mr Cook, and the Commissioner for Competition, Ms. Vestager, at which Ireland was also present. By letter dated 25 January 2016, Apple's CEO provided further clarifications regarding the points raised by Apple during the meeting on 21 January 2016. The Commissioner for Competition responded to that letter by letter of 29 February 2016.

(30) By letter of 29 January 2016, Ireland provided additional information in response to the Commission's request of 11 November 2015.

(31) By letter of 17 February 2016, Ireland again expressed its concerns about the manner in which the investigation had proceeded, indicating that it considered the rules of procedural fairness and the rights of defence to have been breached by the Commission.

(32) By letter of 18 February 2016, Apple submitted additional clarifications regarding the points raised during the meeting on 21 January 2016. Apple also submitted an update to the [Apple's tax advisor] ad hoc report submitted on 17 November 2014 as part of its comments on the Opening Decision (hereinafter: ‘the second [Apple's tax advisor] ad hoc report’). Apple indicated in that letter that it was their understanding that the Opening Decision challenged the profit allocation to the Irish branches of ASI and AOE.

(33) By letter of 18 February 2016, Ireland submitted an unsolicited ad hoc profit allocation report prepared by Pricewaterhouse Cooper (hereinafter: the ‘PwC ad hoc report’) that, according to Ireland, supported its view that the profit attribution to the Irish branches of ASI and AOE endorsed by Irish Revenue in the 1991 and 2007 tax rulings was at arm's length.

(34) By letter of 8 March 2016, the Commission […] requested some additional […] information […]. The Commission also addressed the concerns expressed by Ireland on 17 February 2016 on the scope of the investigation, by explaining that the subject-matter of the investigation consisted in examining whether the allocation of profit to ASI's and AOE's Irish branches endorsed by the 1991 and 2007 tax rulings gave rise to State aid.

(35) On 14 March 2016, Apple […] sent a further letter expressing […] concerns about the fairness of the proceedings. The Commission replied to that letter on 20 April 2016 and sent a copy of its letter to Ireland. In response to the Commission's letter of 20 April 2016, Apple sent a letter to the Commission on 6 May 2016. The Commission replied to the letter of 6 May 2016 on 22 July 2016 and sent a copy of its letter to Ireland. In response to the Commission's letter of 22 July 2016, Apple sent a letter to the Commission on 24 August 2016 expressing Apple's concerns about the fairness of the proceedings.

(36) On 23 March 2016, Ireland sent two letters to the Commission. By its first letter, Ireland provided part of the information requested by the Commission in its letter of 8 March 2016 and stated that it would provide the remainder of the information on 22 April 2016. By its second letter, Ireland again expressed its concerns about the fairness of the procedure.

(37) By letter of 22 April 2016, Ireland submitted a letter from Apple dated 22 April 2016 by which Ireland provided to the Commission the information in response to the Commission's request for information of 11 November 2015 and […] of 8 March 2016.

(38) On 24 May 2016, Ireland provided additional information to supplement its submission of 22 April 2016. That information consisted of minutes of meetings of ASI's and AOE's board of directors which had previously not been provided.

2. FACTUAL AND LEGAL BACKGROUND

(39) This Decision concerns two tax rulings issued by Irish Revenue on 29 January 1991 and on 23 May 2007 in favour of ASI and AOE (hereinafter ‘the contested tax rulings’). The contested tax rulings endorse methods for ASI and AOE to allocate profit to their respective Irish branches. The contested tax rulings allow ASI and AOE to determine their yearly corporation tax liability in Ireland by applying the profit allocation methods endorsed by Irish Revenue in those rulings. The 1991 ruling was in force until 2007, when it was replaced by the 2007 ruling. The 2007 ruling was in force until Apple's new corporate structure in Ireland was put into place. According to the information provided by Apple, the last financial year to which the 2007 ruling applies is 2014, which ends on 27 September 2014.

2.1. BENEFICIARIES OF THE CONTESTED TAX RULINGS

2.1.1. THE APPLE GROUP

(40) The Apple Group is composed of Apple Inc. and all companies controlled by Apple Inc. (hereinafter collectively referred to as: ‘Apple’). Apple is headquartered in the United States of America (hereinafter: the ‘US’).

(41) Apple designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players. It sells a variety of related software, services, peripherals, networking solutions and third-party digital content and applications. Apple sells its products worldwide through its retail stores, online stores and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and value-added resellers. In addition, Apple sells a variety of third-party products compatible with Apple products, including application software and various accessories and peripherals, through its online and retail stores.

(42) Apple sells to consumers, businesses and governments worldwide. Apple manages its business primarily on a geographic basis. The geographic reporting segments are Americas, Europe (7), Japan, Greater China, and Rest of Asia Pacific.

(43) In 2015, Apple had worldwide net sales of USD 233,7 billion and a net income of USD 53,4 billion (8). As of 26 September 2015, Apple held USD 186,9 billion in cash, cash equivalents and marketable securities through foreign subsidiaries (9). This amount corresponds substantially to foreign profits which were not subject to taxation (10).

(44) Apple's global business is structured around key functional areas centrally managed and directed from the US by executives based in Cupertino, US. The key functional areas in the Apple group are: Research and Development (hereinafter ‘R&D’), Marketing, Operations, Sales, and General and Administration.

2.1.2. APPLE's STRUCTURE IN IRELAND

(45) The Apple Group includes companies incorporated in Ireland. Amongst the companies of the Apple Group incorporated in Ireland, a distinction can be made between companies incorporated in Ireland that are also tax resident in Ireland, such as ADI, Apple Operations and Apple Sales Ireland, and companies that are incorporated in Ireland but are not tax resident in Ireland, such as AOI, ASI and AOE.

(46) Of the Apple Group companies incorporated and tax resident in Ireland with employees in Ireland, ADI has been contracted by ASI to ensure the distribution of Apple products outside of the Americas, Apple Operations acquires tooling equipment for use by manufacturers and procures components parts from suppliers for sale to manufacturers and Apple Sales Ireland supports Apple's Sales programs locally in Ireland.

(47) Of the Apple Group companies incorporated in Ireland, but not tax resident in Ireland, ASI is a fully owned subsidiary of AOE, which in turn is a fully owned subsidiary of AOI, which in turn is a fully owned subsidiary of Apple Inc., which is incorporated in the US (11). AOE and ASI operate in Ireland through branches. Figure 1 demonstrates this corporate structure: Figure 1 Apple's corporate structure in Ireland

2.1.3. ASI's AND AOE's LACK OF TAX RESIDENCY

(48) A company that is incorporated under Irish law or centrally managed and controlled in Ireland, or both, is normally considered tax resident in Ireland and therefore liable to corporation tax on its worldwide profits. This means that companies incorporated in Ireland are, in principle, liable to tax in Ireland, even if they are managed and controlled outside of Ireland.

(49) However, prior to its modification by the Finance Act 2013 and Finance Act 2014, Section 23A of the Taxes Consolidation Act 1997 (hereinafter: ‘TCA 97’) provided two exceptions to that rule, allowing for companies incorporated in Ireland to be considered non-resident companies. Under Section 23A TCA 97, a company was not considered a tax resident if (i) it was considered to be a tax resident in another country under the application of a double taxation treaty (the so-called treaty exception) or (ii) the company was listed on a recognised stock exchange or ultimately controlled by a person that was resident in a Member State or tax treaty country (the so-called relevant companies exception), and those relevant companies or their subsidiaries had a trading activity in Ireland (the so-called trading exception) (12). The second of those exceptions meant that relevant companies incorporated in Ireland with a trading activity in Ireland that were centrally managed and controlled outside of Ireland were not considered tax resident in Ireland. There was no requirement, however, that the companies had a tax residence in another tax jurisdiction.

(50) ASI and AOE are both incorporated in Ireland. During the time that the contested tax rulings were in force, ASI and AOE were considered to be ‘relevant companies’ for the purposes of Section 23A TCA 97, since they were both ultimately controlled by a company that is resident in a tax treaty country, namely Apple Inc., which is a tax resident of the US (13), and, since ASI and AOE had a trading activity in Ireland through their respective branches and were managed and controlled outside Ireland, the companies were considered to be non-resident companies in Ireland under the trading exception of Section 23A TCA 97.

(51) ASI and AOE did not have any taxable presence in any other tax jurisdiction besides Ireland during the time that the contested rulings were in force (14). Indeed, each company operated through a single branch in Ireland and, more important, the companies did not have any taxable presence in the US (15), the country in which Irish Revenue, in application of Section 23A TCA 97, considered them to be managed and controlled (16). As regards ASI's and AOE's head offices, those head offices lack any physical presence or employees and are not located in any jurisdiction.

(52) In sum, ASI and AOE are incorporated in Ireland, but were not tax resident in Ireland during the time that the contested tax rulings were in force. Nor were those companies tax resident in any other tax jurisdiction during that period, since their activities in other jurisdictions and in particular the activities of their head offices, which lacked any physical presence and employees, did not give rise to a taxable presence in the US or any other jurisdiction under the applicable taxation rules. During the time that the contested tax rulings were in force, ASI and AOE could therefore be best described as ‘stateless’ for tax residency purposes.

2.1.4. FUNCTIONS OF ASI's AND AOE's IRISH BRANCHES AS PRESENTED BY IRELAND AND APPLE

(53) Ireland and Apple provided descriptions of the functions performed by the Irish branches of ASI and AOE (17), which were used as a basis to present and support Apple's estimates of the taxable profit of those companies for Irish corporation tax purposes. Those descriptions are presented in recitals 54 to 57.

(54) As regards ASI, its Irish branch is mainly responsible for the execution of procurement, sales and distribution activities associated with the sale of Apple products to related parties (18) and third-party customers across the EMEIA and APAC regions (19). Key functions within ASI's Irish branch include: procurement of Apple finished goods from third-party and related-party manufacturers (20); distribution activities associated with the sale of products to related parties in the EMEIA and APAC regions (21); sales support and distribution activities associated with the sale of products to third party customers across EMEIA (22); activities of the selling and distribution teams (23), online sales (24); logistics operations (25); and operating AppleCare, Apple's after-sales customer support business, which includes responsibility for warranty, managing the repair programs and repair network including telephone support.

(55) ASI's Irish branch also fulfils the purchase orders placed by the APAC local country distribution entities. Many activities associated with the distribution into this region are performed by related parties (for example, logistics support) under service contracts with ASI's Irish branch. In addition, ASI's Irish branch is responsible for monitoring day-to-day management of distribution risks, in particular, inventory, warranty and credit limit risks. Since 1 January 2012, ASI's Irish branch has also been responsible for product localisation functions, which were previously performed by AOE's Irish branch.

(56) As regards AOE, its Irish branch is responsible for the manufacturing and assembly of a specialised range of computer products at its facilities in Ireland, including iMac desktops, MacBook laptops and other computer accessories, all of which are manufactured for the EMEIA region (26). AOE's Irish branch supplies all its finished products to related parties. The main activities of AOE's Irish branch involve the ongoing execution of the processes required for the manufacture of products, process design and new product setups. Key functions within AOE's Irish branch include: production planning and scheduling (27); process engineering (28); production and operations (29); quality assurance and quality control (30); and refurbishing operations (31).

(57) In addition to its core manufacturing activities, AOE's Irish branch also provides shared services to other Apple group companies in the EMEIA region, with regard to finance (accounting, payroll and accounts payable services), information systems and technology and human resources. AOE's Irish branch develops Apple-specific process and manufacturing expertise (32) and uses that expertise to support Apple third-party manufacturers and distribution centres from time to time. AOE's Irish branch is also responsible for monitoring the day-to-day management of manufacturing and inventory risks. Until 1 January 2012, the engineering team within AOE's Irish branch was also responsible for localising Apple products for local markets and executing engineering test programs related to Apple products and software (for example, new software releases) (33). Since January 2012, this function has been performed by ASI's Irish branch.

2.1.5. ASI's OPERATIONS IN THE EMEIA REGION

(58) ASI sells goods in the EMEIA region. ASI did not declare a permanent establishment (34) in the EMEIA tax jurisdictions where those goods are sold. Sales are concluded between the clients in different Member State tax jurisdictions and ASI (and ADI) through third-party resellers and Apple retail and online stores. ASI concludes sales contracts by obtaining authorised signatures, and ASI Irish Branch employees execute sales and resolve supply and other issues with customers (35). Sales of ASI are concluded upon signature of an authorised representative (36). For illustration purposes, [80-85] % of ASI's and ADI's total third-party sales revenues in 2014, as determined for Apple's internal reporting (37), was derived from sales within the Union, whereas sales in the overall region of Europe represented [90-95] % of the total third-party sales revenue and sales in the Middle East accounted for [5-10] % of total third-party sales revenue.

2.2. THE CONTESTED TAX RULINGS

2.2.1. THE CONTESTED TAX RULINGS IN SO FAR AS THEY RELATE TO ASI

(59) In 1991, a method for determining the net profit of the Irish branch of Apple Computer Accessories Ltd (which later became ASI) was proposed by Apple and endorsed by Irish Revenue in a tax ruling. According to that ruling, the net profit to be allocated to ASI's Irish branch would be calculated as 12,5 % of all branch operating costs (38), excluding material for resale.

(60) In 2007, a modified method for determining the net profit of ASI's Irish branch was endorsed by Irish Revenue in a new ruling. According to that ruling, the net profit to be allocated to ASI's Irish branch would be calculated as equal to [10-15] % on branch operating costs, excluding costs such as charges from Apple affiliates and material costs.

2.2.2. THE CONTESTED TAX RULINGS INSOFAR AS THEY RELATE TO AOE

(61) In 1991, a method for determining the net profit of the Irish branch of Apple Computer Ltd (which later became AOE) was proposed by Apple and agreed by Irish Revenue in a tax ruling. According to that ruling, the net profit attributable to AOE's Irish branch would be calculated as 65 % of that branch's operating expenses up to an annual amount of USD [60-70] million and 20 % of its operating expenses in excess of USD [60-70] million. The application of that method was subject to the proviso that if the overall profit of AOE's Irish branch was less than the figure resulting from the formula, that lower figure would be used for determining the branch's net profits. Operating expenses used in the method were all operating expenses incurred by AOE's Irish branch, including depreciation, but excluding materials for resale and cost-share for intangibles charged from Apple-affiliated companies. A capital allowance can be claimed, which should not exceed by USD [1-10] million the depreciation charged in the accounts (39).

(62) In 2007, a revised method for determining the net profit of AOE's Irish branch was endorsed by Irish Revenue in a new ruling. According to the method endorsed by that ruling, the tax base of the Irish branch was equal to (i) [10-15] % of branch's operating costs, excluding costs such as charges from Apple affiliates and material costs, (ii) an IP return of [1-5] % of branch turnover in respect of the accumulated manufacturing process technology of the Irish branch and (iii) a deduction for the capital allowances for plant and buildings ‘computed and allowed in the normal manner’.

2.2.3. DOCUMENTS AVAILABLE TO IRISH REVENUE WHEN ISSUING THE CONTESTED TAX RULINGS

(63) The documents provided by Ireland as constituting all essential elements supporting the 1991 ruling include three letters (dated 12 October 1990, 5 December 1990 and 16 January 1991) and two faxes (dated 2 January 1991 and 24 January 1991) from [Apple's tax advisor], as tax advisor of Apple (hereinafter: ‘Apple's tax advisor’); one note of an interview dated 30 November 1990 and one note of a meeting dated 3 January 1991 prepared by Irish Revenue; and a letter from Irish Revenue dated 29 January 1991 which confirms that the letters from Apple's tax advisor correctly reflect the method for determining the profits to be allocated to the Irish branches of ASI and AOE as agreed at the meeting on 3 January 1991. That method is described in recitals 59 and 61.

(64) The following excerpt is taken from the note of the interview of 30 November 1990: ‘[Apple's tax advisor] mentioned by way of background information that Apple was now the largest employer in the Cork area with 1 000 direct employees and 500 persons engaged on a sub-contract basis. It was stated that the company is at present reviewing its worldwide operations and wishes to establish a profit margin on its Irish operations. [Apple's tax advisor] produced the accounts prepared for the Irish branch for the accounting period ended 29 September 1989 which showed a net profit of USD 270m on a turnover of USD 751m. It was submitted that no quoted Irish company produced a similar net profit ratio. In [Apple's tax advisor]'s view the profit is derived from three sources-technology, marketing and manufacturing. Only the manufacturing element relates to the Irish branch. [Irish Revenue] pointed out that in the proposed scheme the level of fee charged would be critical. [Apple's tax advisor] stated that the company would be prepared to accept a profit of USD 30-40m assuming that Apple Computer Ltd will make such a profit. (The computer industry is subject to cyclical variations). Assuming that Apple makes a profit of GBP 100m it will be accepted that USD 30-40m (or whatever figure is negotiated) will be attributable to the manufacturing activity. However if the company suffered a downturn and had profits of less than USD 30-40m then all profits would be attribitable [sic] to the manufacturing activity. The proposal essentially is that all profits subject to a ceiling of USD 30-40m will be attributable to the manufacturing activity. [Irish Revenue] asked [Apple's tax advisor] to state if was there any basis for the figure of USD 30-40m and he confessed that there was no scientific basis for the figure. However the figure was of such magnitude that he hoped it would be seen to be a bona-fide proposal. As it was not possible to gauge the figure in isolation [Apple's tax advisor] undertook to extract details of the actual costs attributable to the Irish branch.’

(65) The following excerpt is taken from the note of the meeting dated 3 January 1991: ‘in [Apple's tax advisor's] view it was clear that the company was engaged in transfer pricing. The branch accounts for the accounting period ended 30 September 1989 showed a net profit of USD 269 000 000 on a turnover of USD 751 000 000. No company on the Irish stock exchange came close to achieving a similar result. Revenue were not prepared to be conclusive as to whether the company was engaged in transfer pricing but were willing to discuss a profit figure for the Irish branch based on a percentage of the actual costs attributable to the Irish branch. The proposal before the meeting was that the profit attributable to the Irish branch would be cost plus USD [30-40]m and the capital allowances would not exceed USD [10-20]m thereby leaving USD [20-30]m chargeable to Irish tax. Based on the accounts for the accounting period ended 30 September 1990 a profit of USD [30-40]m represented 46 % of the costs attributable to the Irish branch. It was pointed out that this figure greatly exceeded a figure of [10-15] % which is normally attributable to a cost center although it was readily conceded that a figure of [10-15] % was meaningless in relation to the computer industry. It was pointed out that a mark-up of 100 % can be achieved in some industries and in particular the pharmaceutical industry. It was conceded however that the pharmaceutical and computer industries are not directly comparable. Following further discussions it was agreed that, subject to receiving a satisfactory outcome to the capital allowance question, to accept a mark-up of 65 % of the costs attributable to the Irish branch. In addition it was agreed to accept a mark-up of 20 % on costs in excess of USD [60-70]m in order not to prohibit the expansion of the Irish operations. (…) Arising from further discussions it was agreed that the capital allowances computations would be re-cast in Irish punts (40) and the normal rate of wear and tear (41) would be written for all years. In addition it was agreed that the company's claim would be restricted to a sum of USD [1-10]m in excess of the sum charged for depreciation in the accounts. Based on the schedule of costs submitted for the period ended 30 September 1990 this would ensure that the profits chargeable to Irish tax would be USD [30-40]m. (…) The format of the accounts to be submitted was then discussed. A proposal to submit a schedule of costs was not accepted. It was agreed that a full profit and loss account would be prepared and a royalty/head office charge would be taken for technology and marketing services provided by the group. In addition the full audited accounts of the company will be submitted. (…) On a separate issue [Apple's tax advisor] wished to agree a mark-up for a new company whose activities would be confined to sourcing raw material in the State. A mark-up of 10 % was proposed and it was agreed following discussions to accept a mark-up of 12,5 %.’

(66) The letter from Apple's tax advisor dated 16 January 1991 contains an illustrative account filling format for the Irish branch of Apple Computer Ltd and a capital allowances schedule for Apple Computer Ltd for the years 1985 to 1990. The fax dated 24 January 1991 from Apple's tax advisor confirms the agreement by Apple to the following wording on the capital allowance which substitutes the wording on the capital allowance previously provided by Apple's tax advisor in the letter dated 16 January 1991: ‘The capital allowance claimed will not exceed by USD [1-10]m of the depreciation charged in the accounts.’

(67) The documents provided by Ireland as constituting all essential elements supporting the 2007 ruling consist of a letter dated 16 May 2007 from Apple's tax advisor and a letter dated 23 May 2007 from Irish Revenue confirming its endorsement of the method for determining the profits to be allocated to the Irish branches of ASI and AOE as explained in the letter from Apple's tax advisor. That method is described in recitals 60 and 62. Neither of the two documents provided offer any explanation for the figures ‘[10-15] % [of Irish located operating costs]/[1-5] % [of the annual turnover of AOE which is derived from products manufactured in Ireland]/[10-15] % [of operating costs of ASI]’, endorsed by that ruling, nor is there any indication as to how those figures were arrived at. The letter of Apple's tax advisor contains a number of specifications as to how the agreed method will be applied. In particular, it specifies, for the avoidance of doubt, that ASI's operating costs and AOE's ‘Irish located operating costs’ exclude all charges from Apple affiliates worldwide, ‘above the line’ costs such as material costs, customs, freight costs, etc., one-off restructuring costs, and capital costs.

(68) None of the documents provided in support of the contested tax rulings contain either a contemporaneous profit allocation study or a transfer pricing report.

2.3. DESCRIPTION OF THE RELEVANT NATIONAL LEGAL FRAMEWORK

(69) Pursuant to Section 21(1) TCA 97, corporation tax in Ireland is charged on the profit of companies. According to Section 76(3) TCA 97, for the purposes of corporation tax, income is computed and the assessment is made under the same Schedules and Cases as apply for the purposes of income tax, and in accordance with the provisions applicable to those Schedules and Cases. In Ireland, income tax under the direct taxation codes is charged by reference to a series of Schedules C, D, E and F, and in Schedule D under a series of Cases I to V. Section 12 TCA 97 provides that ‘[i]ncome tax shall, subject to the Income Tax Acts, be charged in respect of all property, profits or gains respectively described in the Schedules [C-F] […] and in accordance with the provisions of the Income Tax Acts applicable to those Schedules’ (42). Section 18 TCA 97 lays down the scope of the charge under Schedule D and its subsection 2(2) enumerates the Cases and their scope. It follows from those provisions that corporation tax in Ireland is charged on the profits (income and chargeable gains) of a company however arising, subject to specific exceptions (43).

(70) The determination of the taxable base for the purpose of calculating the corporation tax due takes the corporate accounting profit of the taxpayer as a starting point (44). The corporate accounting profit is then adjusted for tax purposes through additions and deductions of general application provided by the law (45), for example, by a capital allowances deduction (46). An accounting period is normally the period of 12 months for which the company makes up its accounts (47).

(71) Ireland applies a different tax rate to trading income, non-trading income and capital gains. Section 21 TCA 1997 sets the general rate of corporation tax at 12,5 % (48). That rate applies to trading income (49) of companies taxed under Case I of Schedule D. Non-trading income is taxed at 25 % (50). Irish Revenue has provided guidance on the classification of activities as trading in its ‘Guidance on revenue opinions on classification of activities as trading’ (51). According to that guidance document, trading presupposes that the company concerned is carrying on business activities from which its income derives. The activities will vary depending on the nature of the trade and will require people with the skill and authority necessary to carry them out (52). Capital gains are taxed at 33 %, with a participation exemption for gains on disposals of certain shareholdings of 5 % or more in companies resident in the Union or tax treaty countries.

(72) According to Section 26 TCA 97, Irish-resident companies are subject to corporation tax on their worldwide profit and capital gains, excluding most distributions received from other Irish-resident companies (53).

(73) Section 25 TCA 97 lays down the scope of the charge to corporation tax in the case of non-resident companies. Section 25 TCA 97 provides, insofar as relevant, the following: ‘(1) A company not resident in the State shall not be within the charge to corporation tax unless it carries on a trade in the State through a branch or agency, but if it does so it shall, subject to any exceptions provided for by the Corporation Tax Acts, be chargeable to corporation tax on all its chargeable profits wherever arising. (2) For the purposes of corporation tax, the chargeable profits of a company not resident in the State but carrying on a trade in the State through a branch or agency shall be — (a) any trading income arising directly or indirectly through or from the branch or agency, and any income from property or rights used by, or held by or for, the branch or agency, but this paragraph shall not include distributions received from companies resident in the State, […].’

(74) It follows from that provision that a non-resident company is not within the charge to corporation tax, unless it carries on a trade in Ireland through a branch or agency. Where a non-resident company carries on such a trade, that company is chargeable to corporation tax on (54): — any trading income arising directly or indirectly through or from the branch or agency; — any income from property or rights used by, or held by or for, the branch or agency; and — chargeable gains attributable to the branch or agency.

(75) Section 25 TCA 97 was preceded by Sections 8(1) and 8(2) of the Corporation Tax Act 1967, which read: ‘8. (1) A company not resident in the State shall not be within the charge to corporation tax unless it carries on a trade in the State through a branch or agency but, if it does so, it shall, subject to any exceptions provided for by this Act, be chargeable to corporation tax on all its chargeable profits wherever arising. (2) For purposes of corporation the chargeable profits of a company not resident in the State but carrying on a trade there through a branch or agency shall be (a) any trading income arising directly or indirectly through or from the branch or agency (but so that this paragraph shall not include distributions received from companies resident in the State); […]’

(76) Companies that are not resident in Ireland and do not trade through a branch or agency in Ireland are only liable to income tax on any Irish-source income and to capital gains tax on gains arising on the disposal of certain Irish assets (principally Irish land) (55), subject to any treaty relief that may be available.

(77) To prevent a company being taxed twice on the same income (once with income tax, once with corporation tax), Section 21(2) TCA 97 provides that income tax is not chargeable on the income of a company if the company is resident in Ireland, or, in the case of a company which is not resident in Ireland, if the income is chargeable to corporation tax.

(78) By Section 42 of the Finance Act 2010, Part 35A was inserted into the TCA 97. According to Ireland, that insertion was the first time that Irish tax law formally recognised the application of the ‘arm's length principle’ as laid down in Article 9 of the OECD Model Tax Convention on Income and on Capital (hereinafter: the ‘OECD Model Tax Convention’) and elaborated upon in the OECD's Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereinafter: the ‘OECD TP Guidelines’). Part 35A applies to arrangements entered into between associated persons (companies). However, based on the definition of a ‘person’ in Ireland's domestic tax legislation, any arrangement entered into between a head office and its branch does not fall within the scope of Part 35A.

2.4. GUIDANCE ON TRANSFER PRICING AND PROFIT ALLOCATION TO PERMANENT ESTABLISHMENTS

2.4.1. THE OECD FRAMEWORK AND THE OECD's ARM'S LENGTH PRINCIPLE

(79) The OECD has produced several non-binding guidance documents on international taxation. Given their non-binding nature, the tax administrations of the OECD member countries, of which Ireland is one (56), are simply encouraged to follow the OECD's framework. Nevertheless, the OECD's framework serves as a focal point and exerts a clear influence on the tax practices of OECD member (and even non-member) countries. Moreover, in numerous OECD member countries guidance documents forming part of that framework have been given the force of law or serve as a reference for the purpose of interpreting domestic tax law. Therefore, to the extent the Commission refers to the OECD framework in this Decision, it does so because that framework is the result of expert discussions in the context of the OECD and elaborates on techniques aimed to address common challenges in international taxation.

(80) As explained in recital 15 of the Opening Decision, multinationals can allocate profit within a corporate group by using transfer pricing between separate companies of the same corporate group. Transfer pricing refers to the prices charged for commercial transactions between various companies of the same corporate group. However, transfer pricing can also take place within one company, if the company operates a permanent establishment in a separate jurisdiction. This requires an allocation of that company's profit between its permanent establishment and the other parts of the company.

(81) The OECD Model Tax Convention, which forms the basis of many bilateral tax treaties involving OECD member countries and an increasing number of non-member countries, contains provisions both on transfer pricing between associated group companies and profit allocation within a company.

(82) Article 9(1) of the OECD Model Tax Convention on ‘associated enterprises’ provides: ‘[Where] conditions are made or imposed between the two [associated] enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly’. That provision is considered to lay down the authoritative statement for international tax purposes of the OECD's ‘arm's length principle’ in transfer pricing between associated group companies.

(83) According to that principle, tax administrations should only accept transfer prices between group companies that are remunerated as if they were agreed to by independent companies negotiating under comparable circumstances at arm's length. In this way, multinationals are prevented from manipulating their transfer prices in such a manner that as little profit as possible is allocated to jurisdictions where those profits are subject to higher taxation and as much profit as possible is allocated to jurisdictions where those profits are subject to lower taxation (57). The OECD provides guidance on the application of the arm's length principle in the OECD TP Guidelines, of which the latest version was published in 2010 (hereinafter: the ‘2010 OECD TP Guidelines’) (58).

(84) Article 7(2) of the OECD Model Tax Convention on ‘business profits’ deals with the attribution of profits within a single company. It provides: ‘[…] the profits that are attributable in each Contracting State to the permanent establishment […] are the profits it might be expected to make, in particular in its dealings with other parts of the enterprise, if it were a separate and independent enterprise engaged in the same or similar activities under the same or similar conditions, taking into account the functions performed, assets used and risks assumed by the enterprise through the permanent establishment and through the other parts of the enterprise.’ Guidance on the application of Article 7 is provided in the OECD's Report on the Attribution of Profits to Permanent Establishments, of which the latest version was published in 2010 (hereinafter: the ‘2010 OECD Profit Attribution Report’) (59).

(85) The 2010 OECD Profit Attribution Report describes the difficulties of allocating profit within a single company as compared to allocating profit between two legally separate companies. Between two legally separate companies, the determination of which company owns the assets and which company bears risk in the relationship between those two companies is determined by legally binding contracts or other ascertainable legal arrangements. This is also the case where the two separate companies are part of the same corporate group, so long as the contracts and legal arrangements reflect the underlying reality. By contrast, the fact that a permanent establishment does not constitute a legal entity separate from the company to which it belongs means that between various parts of the same company there is no single part of the company that could be said to legally ‘own’ the assets, assume the risks, and possess the capital or contracts with separate companies (60). To address that difference, the 2010 OECD Profit Attribution Report determines a common approach to the allocation of profits to permanent establishments of non-resident companies. This is known as the ‘Authorised OECD Approach’. That approach allocates to the permanent establishment those profits that the permanent establishment would have earned at arm's length if it were a ‘distinct and separate’ enterprise performing the same or similar functions under the same or similar conditions, taking into account the functions performed, assets used and risks assumed by the non-resident company through the permanent establishment and through the other parts of that company, as expressed in Article 7(2) of the OECD Model Tax Convention.

2.4.2. BRANCH PROFIT ALLOCATION BASED ON SIGNIFICANT PEOPLE-FUNCTION IN THE TWO-STEP AUTHORISED OECD APPROACH

(86) The 2010 OECD Profit Attribution Report describes the Authorised OECD Approach to the application of the arm's length principle set forth in the OECD TP Guidelines in the context of allocating profit to a permanent establishment. Under the OECD TP Guidelines, the allocation of profit among associated companies is dependent on the functions performed, the risks incurred and the assets employed by each company (61). For the allocation of income between a company and its permanent establishment, the Authorised OECD Approach supplements the functional analysis of Article 9(1) of the OECD Model Convention by a first step to address the fact that, legally, the assets, risks, capital and rights and obligations arising out of transactions between different parts of the same company belong to the company as a whole, rather than to any one part of the company, and that there are no transactions between legally distinct companies belonging to the same corporate group (62).

(87) The Authorised OECD Approach thus consists of a two-step analysis according to which income is allocated to a permanent establishment.

(88) The first step of that approach is to hypothesise the permanent establishment as a distinct and separate enterprise ‘engaged in the same or similar activities under the same or similar conditions, taking into account the functions performed, assets used and risks assumed by the enterprise through the permanent establishment and through the other parts of the enterprise’ (63). It is in this context that the notion of ‘significant people functions’ is introduced. Under the first step, the Authorised OECD Approach allocates to the permanent establishment the economic ownership of assets for which the significant functions relevant to the economic ownership of assets are performed by people in the permanent establishment and also allocates to the permanent establishment those risks for which the significant functions relevant to the assumption and/or management (subsequent to the transfer) of risks are performed by people in the permanent establishment (64).

(89) Under the second step of the Authorised OECD Approach, the OECD TP Guidelines are applied by analogy to the permanent establishment's dealings with other parts of the company to ensure that the performance of all of its functions in relation to those dealings is rewarded on an arm's length basis (65).

2.4.3. CONSIDERATIONS REGARDING THE APPLICATION OF THE AUTHORISED OECD APPROACH TO INTANGIBLES

(90) Section D-2(iii)(c) of the 2010 OECD Profit Attribution Report concerns the allocation of intangibles to permanent establishments. As regards internally developed trade intangibles, point 86 of the Report sets out that, depending on the business organisation model of the enterprises, ‘the active decision-making and management may often be devolved throughout the enterprise. An issue arises as to whether this is likely to be the same with regard to the development of intangible property or whether it is more likely that the significant people functions relevant to the determination of economic ownership of intangible assets are performed at a high strategic level by senior management or by a combination of centralised and devolved decision-making functions’. Point 87 explains that ‘there is no hard evidence that the decision-making process for the development of intangible property is generally so centralised, especially as the focus for determining the significant people functions relevant to the determination of economic ownership is on the active-decision making and management rather than on simply saying yes or no to a proposal. This suggests that, just as for financial assets, economic ownership may often be determined by functions performed below the strategic level of senior management. This is the level at which the active management of a programme toward the development of an intangible would occur, where the ability to actively manage the risks inherent in such a programme lies.’

(91) Regarding acquired trade intangibles, point 94 of Section D-2(iii)(c)(3)A(ii) explains that ‘just as with internally developed intangibles property, the key question in determining economic ownership of acquired intangibles is where within the enterprise the significant people functions related to active decision-making relating to the taking on and management of risks are undertaken’ (66).

2.4.4. THE OECD TP GUIDELINES

(92) The OECD TP Guidelines describe five methods to approximate an arm's length pricing of transactions and profit allocation between companies of the same corporate group: (i) the comparable uncontrolled price method (hereinafter ‘CUP’); (ii) the cost plus method; (iii) the resale minus method; (iv) the transaction net margin method (hereinafter ‘TNMM’) and (v) the transactional profit split method. The Guidelines draw a distinction between traditional transaction methods (the first three methods) and transactional profit methods (the last two methods). The Guidelines declare a preference for traditional transaction methods, such as the CUP, over transactional profit methods, such as the TNMM, as a means to establish whether transfer pricing is at arm's length (67). The Guidelines further explain that multinational corporations retain the freedom to apply methods not described in those guidelines to establish transfer prices, provided those prices satisfy the arm's length principle.

(93) The contested tax rulings endorse a profit allocation for ASI and AOE based on one-sided profit allocation methods which, in their application, resemble the TNMM as described in the OECD TP Guidelines. The TNMM is one of the ‘indirect methods’ to approximate an arm's length pricing of transactions and profit allocation between companies of the same corporate group. The TNMM can be contrasted with the CUP method, which is a ‘direct method’ that compares the price charged for the transfer of property or services in a controlled transaction (that is to say, a transaction between two enterprises that are associated enterprises with respect to each other) to the price charged for the transfer of property or services in a comparable uncontrolled transaction (that is to say, a transaction between enterprises that are independent enterprises with respect to each other), conducted under comparable circumstances. The TNMM approximates what would be an arm's length profit for an entire activity, rather than for identified transactions. It does not seek to establish the price of goods sold, but estimates the profit independent companies could be expected to make on an activity, such as the activity of selling goods. It does this by taking a base (‘a profit level indicator’), such as costs, turnover or fixed investment, and applying a profit ratio reflecting that observed in comparable uncontrolled transactions to that base.

(94) The use of the TNMM as a one-sided transfer pricing method — that is, examining the profitability of only one of the parties to the controlled transactions — is often justified by reliance on paragraph 3.18 of the 2010 OECD TP Guidelines, according to which the ‘tested party’, that is to say, the party to the transaction for which a financial indicator (mark-up on costs, gross margin, or net profit indicator) is tested, should, in principle, be the company which has the less complex function (68). In particular, in cases where one of the parties to a controlled transaction holds intellectual property, which it licenses to its counterparty to perform functions such as manufacturing or distribution, tax advisors often invoke the complexity of establishing a return on that intellectual property for designating the counterparty as the party with the less complex function, establishing a return for the functions performed by that counterparty, and allocating all its profit remaining after deduction of that return, that is to say, all the ‘residual profit’, to the party holding the IP as a royalty for the use of that IP.

2.5. ADDITIONAL INFORMATION SUBMITTED BY IRELAND IN RESPONSE TO THE OPENING DECISION AND IN THE COURSE OF THE FORMAL INVESTIGATION

(95) In its Opening Decision, the Commission requested Ireland to provide all such information as may be helpful to assess the contested tax rulings (69). In particular, the Commission requested Ireland to provide the financial accounts of ASI and AOE for the period 2004 to 2013, the number of full time equivalent employees (hereinafter: ‘FTE’) of ASI and of AOE over the same period (each end of reporting period), the FTE of ASI's and AOE's Irish branches, and information about the cost sharing agreements to which ASI and AOE are party. The Commission also requested Ireland to single out the amount of passive income earned by ASI in the profit and loss accounts and to specify if this passive income comes from Ireland.

2.5.1. FINANCIAL INFORMATION OF ASI AND AOE

(96) The income of both companies is classified in their accounts as deriving from the sale of products, as illustrated by the extracts in Figure 2 and Figure 3. Those accounts indicate that the turnover represents net sales to customers. Both the accounts of ASI and AOE specify (for example for the years 2006 and 2007) that the ‘net sales consist primarily of revenue from the sale of products (hardware, software, and peripherals), and extended warranty and support contracts’. As for ASI, other than turnover and comparatively small amounts of interest, it does not record any other significant types of income. In particular, ASI does not appear to record any royalty income. As for AOE, in addition to turnover and comparatively small amounts of interest, it reports large amounts of dividends paid by ASI to AOE for some accounting periods. Figure 2 Extract from ASI accounts 2007 Figure 3 Extract from AOE accounts 2006

(97) Selected financial information provided by Ireland is presented in Table 1 for ASI and Table 2 for AOE. Table 1 ASI financial information (in USD million) Year ASI turnover Profit before tax Of which interest and investment income net of interest charges Tax declared in statutory accounts 2003 1 682 165 14 2,1 2004 2 223 268 12 2,1 2005 4 068 725 27 3,9 2006 5 626 1 180 54 6,5 2007 6 951 1 844 122 8,9 2008 10 378 3 127 145 14,9 2009 15 404 5 662 92 3,7 2010 28 680 12 140 127 7 2011 47 281 22 134 64 9,9 2012 [63 000 – 63 500 ] [35 000 – 35 500 ] [300 – 400] [1-10] 2013 [62 500 – 63 000 ] [26 500 – 27 000 ] [1 000 – 1 500 ] [1-10] 2014 [67 500 – 68 000 ] [24 500 – 25 000 ] [900 –1 000 ] [1-10]

Table 2 AOE financial information (in USD million) Year AOE turnover Profit before tax Of which interest and investment income net of interest charges Tax declared in statutory accounts 2003 350 11 27,7 7,5 2004 417 25 14,1 2,5 2005 446 69 20,2 2,9 2006 359 1 277 (*2) 61,2 2,7 2007 465 109 63,6 2,0 2008 412 (70) 53 61,9 2,1 2009 358 105 45,7 1,8 2010 372 6 620 (*2) 6,2 2,2 2011 519 6 299 (*2) (2,4) 3,0 2012 [400 – 500] [14 500 – 15 000 ] (*2) [1-10] [1-10] 2013 [400 – 500] [5 000 – 5 500 ] (*2) ([1-10]) [1-10] 2014 [500 – 600] [2 000 – 2 500 ] (*2) [10-20] [1-10]

(98) The financial information presented in Tables 1 and 2 is based on the company statutory accounts of ASI and AOE, as filed in Ireland. ASI and AOE file full company accounts in Ireland because they are incorporated in Ireland. The Commission requested Ireland (71) to clarify whether separate accounts exist for ASI's and AOE's head offices and their respective Irish branches and, if so, to provide such separate accounts. Ireland indicated that the financial accounts for ASI and AOE satisfy the statutory accounting requirements under Irish law and that Irish law does not require ASI and AOE to prepare separate accounts for their Irish branches.

(99) The tax declared by ASI in the statutory accounts is constituted mostly of the tax due to Ireland on the profit of its Irish branches, determined in accordance with the profit allocation methods endorsed by the contested tax rulings (72), since ASI did not consider itself to have a taxable presence in any other tax jurisdiction. However, following assessments by the tax administrations of […] and Italy, ASI was considered to be liable for tax in those two jurisdictions. For the years 2013 and 2014, ASI became liable to withholding tax in […] because the […] tax administration characterised a fee paid by a […] Apple company to ASI as a royalty and subjected that payment to a withholding tax (73). For the years 2009 to 2012, ASI became liable for corporation tax in Italy following an assessment by the Italian tax administration which determined that ASI had a taxable presence in Italy during that period (74). As regards the tax declared by AOE in its statutory accounts, that company had a branch in Singapore and was liable to corporation tax in Singapore for the years 2009, 2010 and 2011 (75).

(100) Ireland also provided the component in the interest income reported in the statutory accounts of ASI and AOE, which relates to property of the respective Irish branches of the two companies (76). Ireland provided a breakdown of ASI's interest income into ‘interest paid in ASI's financial account’ and ‘interest from property’. For example, in 2012 the interest paid in ASI's financial accounts was USD [500-600] million and interest income from branch property was USD [1-10] million. In its letter of 15 April 2015, Ireland indicated that the interest attributable to ASI's Irish branch and AOE's Irish branch is earned on separately identifiable bank accounts or funds. The day-to-day operations of those bank accounts are controlled by finance and treasury staff based in Cork, Ireland (77).

(101) In the contested tax rulings, the taxable profit of ASI's Irish branch is determined by reference to operating expenses. Separate accounting of operating expenses for the branch is, however, unavailable, since no separate accounts have ever been provided by Apple to Ireland. A detail of operating expenses for ASI as a whole for years 2011 and 2012, as reported in ASI's statutory accounts, is presented in Figure 4 for illustration purposes. Figure 4 ASI operating expenses in Annual report of 2012 Operating expenses 2012 2011 USD'000 USD'000 Marketing, sales and distribution costs [400 000 -500 000 ] 604 888 Administration expenses [100 000 -200 000 ] 139 870 Research and development [1 500 000 -2 000 000 ] 1 538 036

(102) In the contested tax rulings, the taxable profit of AOE's Irish branch is determined by reference to operating expenses and turnover. The profit and loss account of AOE as a whole for the years 2011 and 2012 is presented in Figure 5 for illustration purposes. Figure 5 Profit and loss account of AOE in Annual report of 2012 Profit and loss account for the year ended 29 September 2012 2012 2011 Note USD'000 USD'000 Turnover — continuing operations 1 [400 000 -500 000 ] 518 505 Cost of sales [(300 000 -400 000 )] (426 594 ) Gross profit [90 000 -100 000 ] 91 911 Operating expenses 2 [(10 000 -20 000 )] (42 654 ) Operating profit — continuing operations [70 000 -80 000 ] 49 257 Income from group undertakings [14 500 000 -15 000 000 ] 6 252 591 Other interest receivable and similar income 3 [1 000 -10 000 ] 122 Interest payable and similar charges 4 [(30-40)] (2 505 ) Amounts written off financial assets 11 [(50-60)] — Profit on ordinary activities before taxation 5-8 [14 500 000 -15 000 000 ] 6 299 465 Tax on profit on ordinary activities 9 [(1 000 -10 000 )] (2 966 ) Profit for the financial year [14 500 000 -15 000 000 ] 6 296 499

(103) As regards the companies' corporation tax liability in Ireland, the financial accounts of ASI and AOE refer to a ‘lower than the standard rate of tax in Ireland’ for the periods until 2007. The extract of ASI's audited accounts as reproduced in its annual report for 2007 is reproduced in Figure 6. Figure 6 Extract annual report of ASI for the period 2007 Tax on profit on ordinary activities The current tax charge is lower than the standard rate of tax in Ireland. The differences are explained as follows: 2007 2006 USD'000 USD'000 Profit on ordinary activities before tax 1 843 933 1 179 637 Current tax at 12,5 % (2006: 12,5 %) 230 492 147 455 Effects of: Interest income charged at higher rate (25 %) 2 485 1 610 Adjustment to tax charge in respect of previous periods — (131) Income taxed at lower rates (224 049 ) (142 450 ) Total current tax charge 8 928 6 484

(104) In the periods following 2007, the tax charge of the companies is presented in the financial accounts as calculated by applying a [1-5] % tax rate. That tax rate is described in those accounts as ‘[t]he average tax rate for all jurisdictions in which [AOE] operates’. The extract of ASI's audited accounts as reproduced in its annual report for 2012 is reproduced in Figure 7. Figure 7 Extract annual report of ASI for the period 2012 Tax on profit on ordinary activities The company is not tax resident in any jurisdiction. It has activities in various countries. The average tax rate for all jurisdictions in which it operates is approximately [1-5]%. 2012 2011 USD'000 USD'000 Profit on ordinary activities before tax [35 000 000 -35 500 000 ] [22 000 000 -22 500 000 ] Tax at [1-5]% [1 000 000 -1 500 000 ] [800 000 -900 000 ] Effects of: Interest income charged at higher rate (25 %) [600-700] 620 Income taxed at (lower)/higher rates [(1 000 000 -1 500 000 )] (876 117 ) Total current tax charge [1 000 -10 000 ] 9 862

(105) Taxes effectively due by ASI in Ireland, according to its tax returns for the period 25 September 2011 to 24 September 2012, amounted to EUR [1-10] million for trading income (the corresponding trading income amounted to EUR [30-40] million), to which tax on interest income of EUR [0,6-0,7] million was added, resulting in a tax liability of EUR [1-10] million (78). For the same period, the tax effectively due by AOE in Ireland was EUR [1-10] million for trading income (corresponding to a trading income of EUR [10-20] million), to which a trading relief at source was added, resulting in a tax liability of EUR [1-10] million.

(106) Ireland indicated that funds identified as being above the working capital needs of ASI and AOE are transferred to ASI and AOE bank accounts and investment funds outside of Ireland which are operated, managed and controlled in the US.

(107) As regards the bank accounts of ASI used to collect the sales proceeds from customers in the EMEIA region, Ireland indicated that the cash flow differs depending on whether the customer is a channel partner, an Apple Online Store user, or if a sale is made in an Apple retail store. If the customer is a channel partner (79), Apple receives cash either by wire transfer or through a direct debit into an ASI bank account in the customer's local jurisdiction or in a common ASI bank account in the US or Europe that receives funds from sales in multiple countries. However, according to the overview submitted by Ireland regarding the location of ASI's bank accounts, as of March 2009, no bank account collecting EMEIA sales proceeds was located in the US and as of March 2012, only sales proceeds from Iceland, Russia and Turkey and parts of the Middle East and Africa are collected in bank accounts located in the US. All the other sales proceeds are collected in bank accounts located in Europe. Ireland also indicated that Apple's EMEIA Treasury group, which consists of three Ireland-based people, groups the cash held in the local accounts in the EMEIA region into ‘concentration accounts’ held in ASI's name on a regular basis. According to Ireland, those accounts are located in the United Kingdom, the US and Switzerland.

(108) As regards investment funds, according to information provided by Apple, the company providing cash management and investment services to ASI and AOE, on the basis of investment management services agreements concluded with ASI and AOE, is Braeburn Capital Inc. (hereinafter ‘Braeburn’), a company located in the US. The services include investment and cash management […]. During the meeting of the boards of ASI and AOE on 24 July 2006, it was decided to retain Braeburn to assist ASI and AOE in managing their cash reserves (80). According to Ireland, all income arising from those investments has a non-Irish source and, accordingly, the interest on those investments is not subject to tax in Ireland.

2.5.2. INFORMATION ON EMPLOYEES OF ASI AND AOE

(109) In its response to the Opening Decision, Ireland indicated that up until 31 December 2011 all employees of Apple in Ireland were formally employed by AOE, with AOE's Irish branch operating a single payroll in Ireland. According to Ireland, such arrangements are not uncommon in Ireland for groups. There was a recharge mechanism in place whereby the costs of AOE employees working on activities of ASI's Irish branch were allocated to that branch on a monthly basis. From 1 January 2012, employment arrangements were reorganised, so that employees were directly employed by the entity whose Irish branch activities they worked on.

(110) Ireland submitted the FTE (81) figures provided by Apple to the Commission. For the period prior to 1 January 2012, the FTEs of AOE's Irish branch were split between ASI's and AOE's Irish branches in accordance with where costs were incurred. Table 3 FTE for Irish branches of ASI and AOE Period ASI Irish branch AOE Irish branch 25 September 2004 709 783 24 September 2005 839 739 30 September 2006 912 836 29 September 2007 937 544 27 September 2008 1 046 604 26 September 2009 994 707 25 September 2010 1 387 1 091 24 September 2011 1 660 872 29 September 2012 [200-300] [400-500] 28 September 2013 [300-400] [700-800]

(111) In addition to the Irish branch employees, Ireland was informed by Apple that AOE also had FTEs in Singapore, where it had a branch operation originally performing manufacturing activities and later group services associated to distribution activities (82). Those branch activities ceased in 2009 and the assets of that branch were sold to an Apple affiliate in Singapore. Since then, the Singapore branch has been a dormant branch of AOE. The average number of employees employed in AOE's Singapore branch was 185 in 2004, 189 in 2005, 257 in 2006, 300 in 2007 and 352 in 2008.

(112) Ireland submitted that Apple informed it that there were no FTEs employed by ASI or AOE beyond those employed in their respective Irish branches and in AOE's Singapore branch. According to Apple, ASI and AOE were functionally managed and controlled from the US and all significant business decisions (including in relation to matters such as IP, product development, what products and component would be manufactured and sales and marketing strategy) were made in the US and not in the Irish branches of ASI and AOE.

2.5.3. ACTIVITY OF THE ASI's AND AOE's BOARD OF DIRECTORS

(113) Both Ireland (83) and Apple (84) claim that critical business activities conducted by or for ASI and AOE are conducted outside of Ireland, for example through Apple Inc. employees or the board of directors of ASI and AOE, which, according to Apple, decided, amongst others, to enter into the various amendments of the CSA (85) with Apple Inc. Apple further indicated that ‘the management and control of ASI and AOE from the US is manifested not only in board meetings, but in the myriad ways’ (86), without further specification.

(114) ASI's board of directors consists of three directors and one secretary. Out of those four people, three board members are located in the US and are employed by Apple Inc. The other board member is located in Ireland and employed by ADI. AOE's board of directors consists of two directors and one secretary, of which the secretary and one of the directors are also on the board of ASI. Out of those three people, two board members are located in the US and are employed by Apple Inc. The other board member is located in Ireland and employed by ADI. According to the financial reports of ASI, no remuneration was paid by ASI (87) to any of its directors at any time during the period from 2004 to 2014, for which financial accounts have been provided. By contrast, the directors of AOE were remunerated over that period. For example, the company paid USD […] in 2012 and USD […] in 2011 for the remuneration of its directors.

(115) The Commission requested all the minutes of the meetings of ASI's and AOE's board of directors, which Apple provided. The first meeting of ASI's board of directors was held on 5 April 1990 in Dublin, Ireland. The first meeting of AOE's board of directors was held on 15 September 1980 in Dublin, Ireland. For illustration purposes, Table 4 summarises the activity of ASI's board of directors between January 2009 and September 2011 (16 board meetings, 3 annual general meetings and 9 written resolutions) and Table 5 summarises that of AOE's board of directors between December 2008 and September 2011 (13 board meetings, 4 annual general meetings and 12 written resolutions). Table 4 Resolution by ASI's directors and board meeting minutes Date Type of document Summary ASI minutes 30.1.2009 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Jae Allen, Tim Cook) Resolving to authorize certain listed individuals to open, maintain, close or otherwise manage ASI's banking, investment, brokerage and other accounts. 11.2.2009 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Jae Allen, Tim Cook) Resolving to authorize certain listed individuals to open, maintain, close or otherwise manage ASI's banking, investment, brokerage and other accounts. 18.3.2009 Written resolution of the Directors (Jae Allen and Cathy Kearney) Granting a power of attorney. 20.7.2009 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Jae Allen and Tim Cook) Resolving to approve the draft Directors Report and financial statement for FY 2008 and the auditor's remuneration, resolving to hold the Annual General Meeting on 3 August 2009 and resolving to appoint [Apple's tax advisor] as the auditor in place of […]. 3.8.2009 Minutes of Annual General Meeting (Peter Oppenheimer as chair and as corporate representative of both AOI as AOE and Gene Levoff as corporate representative of Baldwin Holdings Unlimited) Resolving to adopt the Directors Report and financial statement for FY 2008, resolving to appoint [Apple's tax advisor] as the auditor, resolving to authorise the Directors to fix the remuneration of the auditors and resolving that the next Annual General Meeting might be held outside of Ireland. 23.10.2009 Board Minutes (Peter Oppenheimer as chair and Jae Allen) Resolving to pay an interim dividend to AOE of USD 3 482 850 781,21 on 27 October 2009 and resolving to pay a further interim dividend to AOE in the amount of the interest accrued on the principal amounts as of 27 October 2009. 10.12.2009 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney and Jae Allen) Granting a power of attorney to […], a company registered in Ukraine with 100 % foreign investment to act on behalf of ASI as Apple Value Added Distributor. 10.12.2009 Written resolution of the Directors (Peter Oppenheimer and Cathy Kearney, Jae Allen) Written resolution and request of the Directors, requesting Tim Cook to resign as a director of ASI and resolving that Tim Cook shall ipso facto vacate his office as a director of ASI. 31.1.2010 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Jae Allen) Resolving to appoint Elisabeth S. Rafael as a director of ASI. 3.3.2010 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Jae Allen, Elisabeth Rafael) Resolving to re-appoint Tim Cook as a director of ASI. 31.3.2010 Written resolution of the Directors (Peter Oppenheimer, Tim Cook, Jae Allen, Elisabeth Rafael) Resolving to pay an interim dividend to AOE of USD 800 000 000 on 8 April 2010. 12.5.2010 Board Minutes (Jae Allen as chair, Elisabeth Rafael) Resolving to pay an interim dividend to AOE of USD 1 000 000 000 on 20 May 2010. 16.6.2010 Board Minutes (Peter Oppenheimer as chair, Elisabeth Rafael) Resolving to pay an interim dividend to AOE of USD 600 000 000 on 17 June 2010. 22.6.2010 Board Minutes (Peter Oppenheimer as chair, Elisabeth Rafael) Approving the grant of powers of attorney to Gary Wipfler, Cathy Kearney and Michael O'Sullivan to act on behalf of ASI. The power of attorney covers the following aspects: (i) correspondence of the company, (ii) relationships with the government and other public offices, (iii) audits, (iv) insurance, (v) purchase, hire-purchase and financing agreement, relating to assets and services, (vi) renting, supplying, deposit agreements and agreements for the use of assets, (vii) transfer of personal property, (viii) taking delivery of goods and issuance of relevant receipts, (ix) work council and (x) commercial contracts. 23.7.2010 Minutes of Annual General Meeting (Peter Oppenheimer as chairman and as corporate representative of both AOI as AOE) and Gene Levoff as corporate representative of Baldwin Holdings Unlimited) Resolving to adopt the Directors Report and financial statement for FY 2009, resolving to re-appoint [Apple's tax advisor] as the auditor, resolving to authorise the Directors to fix the remuneration of the auditors, noting that interim dividends totalling USD 5 884 972 906,56 had been declared and paid since the end of FY 2009 to AOE and resolving that the next Annual General Meeting might be held outside of Ireland. 23.7.2010 Board Minutes (Peter Oppenheimer, Elisabeth Rafael as chairwoman) Resolving to hold the Annual General Meeting on 23 July 2010. 20.9.2010 Board Minutes (Peter Oppenheimer as chairman, Jae Allen) Resolving to pay an interim dividend to AOE of USD 690 000 000 on 21 September 2010. 17.11.2010 Board Minutes (Peter Oppenheimer as chairman, Elisabeth Rafael) Resolving to pay an interim dividend to AOE of USD 1 750 000 000 on November 18, 2010. 21.12.2010 Board Minutes (Peter Oppenheimer, Elisabeth Rafael as chairwoman) Approving to grant a temporary power of attorney to Gerard Lane to carry on the day to day operations of ASI due to scheduled annual leaves of the directors of ASI. 4.3.2011 Board Minutes (Peter Oppenheimer as chairman, Elisabeth Rafael) Resolving to pay an interim dividend to AOE of USD 1 000 000 000 on 7 March 2011, noting the resignation of Jae Allen as a director and the appointment of Mark Stevens as a director effective 15 March 2011 and approving the new banking resolution. 21.3.2011 Board Minutes (Peter Oppenheimer as chairman, Elisabeth Rafael) Resolving to pay an interim dividend to AOE of USD 1 000 000 000 on 24 March 2011. 21.4.2011 Board Minutes (Mark Stevens, Elisabeth Rafael as chairwoman) Resolving to authorize certain listed individuals to open, maintain, close or otherwise manage ASI 's banking, investment, brokerage and other accounts. 11.5.2011 Board Minutes (Peter Oppenheimer as chairman, Elisabeth Rafael) Resolving to pay an interim dividend to AOE of USD 1 000 000 000 on 12 May 2011. 29.6.2011 Minutes of Annual General Meeting (Audrey Fernandez-Elliott as chairman and as corporate representative of both AOI as AOE) and Gene Levoff as corporate representative of Baldwin Holdings Unlimited) Resolving to adopt the Directors Report and financial statement for FY 2010, resolving to re-appoint Elisabeth Rafael, Tim Cook and Mark Stevens as directors of ASI, resolving to re-appoint [Apple's tax advisor] as the auditor, resolving to authorise the Directors to fix the remuneration of the auditors, noting and approving that interim dividends totalling USD 11 324 972 906,56 had been declared and paid to AOI since the end of financial year 2009 and resolving that the next Annual General Meeting might be held outside of Ireland. 29.6.2011 Board Minutes (Mark Stevens, Elisabeth Rafael as chairwoman) Approving the draft Directors Report and financial statement for FY 2010 and the auditor's remuneration, noting that interim dividends totalling USD 11 324 972 906,56 had been declared and paid to AOE since the end of financial year 2009, resolving to hold the annual general meeting on 29 June 2011, noting the resignation of Peter Oppenheimer as director and secretary of ASI and appointing Gene Levoff as director and secretary of ASI in his place. 27.7.2011 Board Minutes (Gene Levoff as chair, Elisabeth Rafael) Granting a power of attorney. 7.9.2011 Board Minutes (Gene Levoff as chair, Elisabeth Rafael) Noting that it would be more practical and in the best commercial interest to propose to ASI's members to pay the dividends in the form of fixed income investments. Resolving to recommend to the members an interim dividend to be paid to AOE in the form of fixed income investment with a total projected value of USD 1 502 298 132 on 8 September 2011. 7.9.2011 Board Minutes (Gene Levoff as chair, Elisabeth Rafael) Resolving to pay an interim dividend to AOE in the form of fixed income investment with a total projected value of USD 1 502 298 132 on 8 September 2011.

Table 5 Resolution by AOE's directors and board meeting minutes Date Type of document Summary AOE minutes 17.12.2008 Board Minutes (Peter Oppenheimer, Gary Wipfler as chair) Resolving to execute an employment grant agreement. 14.1.2009 Board Minutes (Peter Oppenheimer, Gary Wipfler as chair) Resolving to authorize certain listed individuals to open, maintain, close or otherwise manage AOE's banking, investment, brokerage and other accounts. 25.2.2009 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Gary Wipfler, Tim Cook) Resolving to execute the Trust Deed and Rules for AOE's pension plan. 20.7.2009 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Gary Wipfler, Tim Cook) Resolving to approve the draft Directors Report and financial statement for FY 2008 and the auditor's remuneration, resolving to appoint Peter Oppenheimer and Cathy Kearney to act as AOE's corporate representatives for the purpose of attending the 2009 Annual General Meeting of ASI, resolving to hold the annual general meeting on 3 August 2009 and resolving to appoint [Apple's tax advisor] as the auditor in place of […]. 22.7.2009 Board minutes (Peter Oppenheimer as chair, Gary Wipfler) Resolving to execute a Business Transfer Agreement to transfer the business of the AOE Singapore branch to Apple South Asia Pte.Ltd 3.8.2009 Minutes of Annual General Meeting (Peter Oppenheimer as chair and as corporate representative of AOI and Gene Levoff as corporate representative of Baldwin Holdings Unlimited) Resolving to adopt the Directors Report and financial statement for FY 2008, resolving to appoint [Apple's tax advisor] as the auditor, resolving to authorise the Directors to fix the remuneration of the auditors and resolving that the next Annual General Meeting might be held outside of Ireland. 23.10.2009 Board minutes (Peter Oppenheimer as chair, Gary Wipfler) Noting the upcoming receipt of a dividend of USD 3 482 850 781,21 from ASI on 27 October 2009, resolving to pay a dividend of USD 4 607 274 666,29 to AOI, resolving to pay a further interim dividend to AOI in the amount of the interest accrued as of 27 October 2009. 21.12.2009 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Gary Wipfler) Resolving to execute the Supplementary Business Transfer Agreement to transfer the business of the AOE Singapore branch to Apple South Asia Pte.Ltd and grant a power of attorney. 21.12.2009 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Gary Wipfler) Written resolution and request of the Directors, requesting Tim Cook to resign as a director of AOE and resolving that Tim Cook shall ipso facto vacate his office as a director of AOE. 31.3.2010 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Gary Wipfler) Resolving to receive an interim dividend from ASI of USD 800 000 000 on 8 April 2010 and pay the same amount to AOI. 23.4.2010 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Gary Wipfler) Resolving the application for replacement of certificates of title of certain registered property in Singapore. 14.5.2010 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Gary Wipfler) Resolving to receive an interim dividend from ASI of USD 1 000 000 000 on 20 May 2010 and pay the same amount to AOI. 14.6.2010 Minutes of Annual General Meeting (Peter Oppenheimer as chair and as corporate representative of AOI and Gene Levoff as corporate representative of Baldwin Holdings Unlimited) Resolving to adopt the Directors Report and financial statement for FY 2009, resolving to re-appoint [Apple's tax advisor] as the auditor, resolving to authorise the Directors to fix the remuneration of the auditor noting that interim dividends totalling USD 5 284 972 906,56 had been paid since the end of FY 2009 to AOI and resolving that the next Annual General Meeting might be held outside of Ireland. 16.6.2010 Board minutes (Peter Oppenheimer as chair, Gary Wipfler) Noting the upcoming receipt of a dividend of USD 600 000 000 from ASI on 17 June 2010 and resolving to pay the same amount to AOI. 23.7.2010 Minutes of Annual General Meeting (Peter Oppenheimer as chairman and as corporate representative of AOI and Gene Levoff as corporate representative of Baldwin Holdings Unlimited) Resolving to adopt the Directors Report and financial statement for FY 2009, resolving to re-appoint [Apple's tax advisor] as the auditor, resolving to authorise the Directors to fix the remuneration of the auditor, noting that interim dividends totalling USD 5 884 972 906,56 had been declared and paid since the end of FY 2009 to AOI and resolving that the next Annual General Meeting might be held outside of Ireland. 23.7.2010 Board minutes (Peter Oppenheimer, Gary Wipfler as chair) Resolving to hold the annual general meeting on 23 July 2010. 20.9.2010 Board minutes (Peter Oppenheimer, Gary Wipfler as chair) Noting the upcoming receipt of a dividend of USD 690 000 000 from ASI on 21 September 2010 and resolving to pay a dividend of USD 900 000 000 to AOI. 15.11.2010 Board minutes (Peter Oppenheimer, Gary Wipfler as chair) Resolving to approve the execution of a property lease for additional warehouse space to facilitate an expansion in production. 17.11.2010 Board minutes (Peter Oppenheimer, Gary Wipfler as chair) Noting the upcoming receipt of a dividend of USD 1 750 000 000 from ASI on 18 November and resolving to pay the same amount to AOI. 3.12.2010 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Gary Wipfler) Approving the grant of powers of attorney to Cathy Kearney and Michael O'Sullivan to act on behalf of AOE. The powers of attorney cover the following aspects: (i) correspondence of the company, (ii) relationships with the government and other public offices, (iii) audits, (iv) insurance, (v) purchase, hire-purchase and financing agreement, relating to assets and services, (vi) renting, supplying, deposit agreements and agreements for the use of assets, (vii) transfer of personal property, (viii) taking delivery of goods and issuance of relevant receipts, (ix) work council and (x) commercial contracts. 4.3.2011 Board minutes (Peter Oppenheimer as chair, Gary Wipfler) Noting the upcoming receipt of a dividend of USD 1 000 000 000 on 7 March 2011 and resolving to pay the same amount to AOI. 21.3.2011 Board minutes (Peter Oppenheimer as chair, Gary Wipfler) Noting the upcoming receipt of a dividend of USD 1 000 000 000 on 24 March 2011 and resolving to pay the same amount to AOI. 26.4.2011 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Gary Wipfler) Resolving to authorize certain listed individuals to open, maintain, close or otherwise manage AOE's banking, investment, brokerage and other accounts. 11.5.2011 Board minutes (Peter Oppenheimer, Gary Wipfler as chair) Noting the upcoming receipt of a dividend of USD 1 000 000 000 on 12 May 2011 and resolving to pay the same amount to AOI. 23.6.2011 Written resolution of the Directors (Peter Oppenheimer, Cathy Kearney, Gary Wipfler) Resolving to approve the draft Directors Report and financial statement for FY 2010 and the auditors remuneration, resolving to appoint Audrey Fernandez-Elliott and Cathy Kearney to act as AOE's corporate representatives for the purpose of attending the 2011 Annual General Meeting of ASI, noting that interim dividends totalling USD 12 659 796 428,08 had been declared and paid to AOI since the end of FY 2009, resolving to hold the annual general meeting on 27 June 2011, noting the resignation of Peter Oppenheimer as director and secretary of AOE effective as of 1 July 2011 and appointing Gene Levoff as director and secretary of ASI in his place. 27.6.2011 Minutes of Annual General Meeting (Audrey Fernandez-Elliott as chair and as corporate representative of AOI and Gene Levoff as corporate representative of Baldwin Holdings Unlimited) Resolving to adopt the Directors Report and financial statement for FY 2010, resolving to re-appoint [Apple's tax advisor] as the auditor, resolving to authorise the Directors to fix the remuneration of the auditor, noting and approving that interim dividends totalling USD 12 659 796 428,08 had been declared and paid to AOI since the end of FY 2009 and resolving that the next Annual General Meeting might be held outside of Ireland. 7.9.2011 Board minutes (Gene Levoff as chair and Gary Wipfler) Noting that it would be more practical and in the best commercial interest to propose to AOE's members to pay the dividends in the form of fixed income investments. Resolving to recommend to the members an interim dividend to be paid to AOI in the form of fixed income investment with a total projected value of USD 1 502 298 132 on 8 September 2011. Resolving to pay a further interim dividend to AOI in the amount of the interest accrued. 7.9.2011 Written resolution of the members (AOI and Baldwin Holding Unlimited) Resolving to pay an interim dividend to AOI in the form of fixed income investment with a total projected value of USD 1 502 382 564 on 8 September 2011. 7.9.2011 Appointment of corporate representative for written solution Appointment by AOI, as a member of AOE, of Gene Levoff as AOI's representative to execute a written solutions on behalf of AOI to declare the recommended interim dividend and to direct payment thereof in specie. Baldwin Holding Unlimited as the other member of AOE appointed Gary Wipfler for this.

2.5.4. COST SHARING AGREEMENT BETWEEN APPLE INC., ASI AND AOE

(116) On 8 December 2015, Ireland provided copies of the cost sharing agreement (hereinafter: the ‘CSA’) and all agreements to (sub-)transfer intangible property concluded between Apple Inc., AOI, ASI and AOE (and their predecessors) since the establishment of Apple in Ireland (88).

(117) According to the information provided, Apple Inc. entered into the CSA with AOE (at the time called Apple Computer Limited) in December 1980. Since then, the CSA has been amended 16 times, most recently in 2013. In 1999, ASI (at the time called Apple Computer International) also became a party to the CSA. At the same time as the CSA was entered into in December 1980, Apple Inc. concluded an ‘Agreement to Transfer Intangible Property’ with AOI. AOI, in turn, concluded an ‘Agreement to sub-Transfer Intangible Property’ with AOE, under which AOE was granted an exclusive, royalty-free licence to use the trade names, trademarks, trade secrets and patents in, initially, Western Europe and, later, the EMEIA region, and to sublicense those rights and licences (89). For that initial transfer of Apple's then-existing intangible property, AOE's predecessor made no buy-in payment.

(118) Under the CSA, Apple Inc., on the one hand, and ASI and AOE, on the other, agreed to combine their R & D efforts and to share the costs and rights relating to the ‘Development Programme’. The Development Programme refers to: (i) the development of new intangible property, (ii) the creation of improvements, updates, adaptations, translations, localizations or other modifications to existing intangible property, (iii) the development and improvement of manufacturing processes for any product, and (iv) the development, acquisition and protection of marketing intangibles.

(119) Intangible property is defined in the CSA as ‘all technologies, procedures, processes, designs and design rights, inventions, discoveries, know-how, patents (including patent applications, etc.), copyrights (and other rights of authorship), trade secrets, computer programmes (in source code and object code form), flow charts, formulae, enhancements, updates, translations, adaptations, information, specifications, process technology, manufacturing requirements, quality control standards, marketing intangibles, and any other similar intangible property as defined under Treas. Reg. §1.482-4(b) developed pursuant to the Development Programme.’ (90) Marketing intangibles are defined as ‘any and all trademarks, service marks, trade names, trade secrets, trade dress, domain names, business marks, designs, marketing strategies, registrations, pending registrations and copyrights to logos or pictorial depictions, any goodwill and intangible value associated with any marks, and other similar marketing intangible property that is in the commercial exploitation of the products.’ (91)

(120) Under the CSA, the right to use Apple's intangible property to manufacture and sell Apple products is shared among the parties to the agreement. Apple Inc. holds the right to manufacture and sell Apple products in all countries in North and South America (hereinafter collectively designated as: the ‘Americas’). ASI and AOE hold the right to manufacture and sell Apple products in markets outside of the Americas. The legal title to all intangible property is held solely in the name of Apple Inc. ASI and AOE have the beneficial ownership in their territory of the intangible property developed as a result of the R & D conducted under the CSA (92). The way in which the beneficial ownership of the intangible property is granted to ASI and AOE has changed throughout the different amendments to the CSA. Until 1988, Apple Inc. granted AOE an exclusive licence under the CSA to use the Apple IP in its territory. In the CSAs concluded and amended since 1988, the rights to the improvements to that IP and newly developed IP are granted on a ‘non or co-exclusive’ basis (93). Since 2007, Apple grants ASI and AOE an exclusive licence to the Apple IP, whereby ASI and AOE grant the same licence back to Apple in the form of a non-exclusive right (94).

(121) Under the CSA, the costs of the R & D for Apple's products are divided among the parties. To calculate each party's share, Apple Inc., ASI and AOE each pay a portion of the pooled costs based on the percentage of product sales that occur in their respective territories. For example, in 2012 Apple's worldwide R & D costs totalled USD [3-3,5] billion. That year, approximately 45 % of Apple's worldwide sales occurred in the Americas. Accordingly, Apple Inc. paid 45 % of the R & D costs under the CSA, while ASI and AOE paid the remaining 55 % of those costs under the CSA. The division of costs in the years 2008 to 2014 is presented in Table 6. Table 6 Development costs of Apple covered by the CSA and financing of these costs by ASI and AOE (in USD) 2008 2009 2010 2011 2012 2013 2014 Total development costs of Apple covered by the CSA 983 005 465 1 211 545 821 1 795 015 606 3 932 919 909 [3 000 000 000 – 3 500 000 000 ] [3 500 000 000 – 4 000 000 000 ] [7 000 000 000 – 7 500 000 000 ] Portion financed by ASI 362 836 613 476 479 653 891 205 117 2 202 029 840 [1 500 000 000 – 2 000 000 000 ] [2 000 000 000 – 2 500 000 000 ] [4 000 000 000 – 4 500 000 000 ] Portion financed by AOE 4 126 371 3 170 692 12 813 711 24 134 510 [10 0000 000 – 20 000 000 ] [10 000 000 – 20 000 000 ] [30 000 000 – 40 000 000 ] percentage of Apple development costs financed by ASI and AOE (%) 37 40 50 57 [50-55] [55-60] [55-60]

(122) The CSAs of 2009 and 2013 list the functions and risks allocated to the parties to the CSA (95). Functions and risks allocated under the CSA to Apple Inc. (referred to as ‘Apple’ in the CSA) and to both ASI and AOE (collectively referred to as ‘International Participant’ in the CSA) are summarised in the CSA and presented in Figure 8 and in Figure 9 respectively. Figure 8 Functions performed by Apple and the International Participant (ASI and AOE) under the CSA FUNCTIONS APPLE INTERNATIONAL PARTICIPANT Research and Development of the Cost Shared Intangibles X X Quality Control of the Cost Shared Intangibles X X Forecasting, Financial Planning and Analysis in Relation to the Intangible Development Activities X R&D Facilities Management X X Contracting with Related Parties or Third Parties in Relation to the Intangible Development Activities X X Contract Administration in Relation to the Intangible Development Activities X X Selection, hiring