Andy Moseby, corporate partner at digital media and technology specialist law firm Kemp Little, explains the meaning of the European Commissions decision this week that Apple must pay back taxes in Ireland.

If Apple had paid Ireland’s standard 12.5 per cent corporate tax rate, then none of this would be an issue. However, the European Commission says that by allowing Apple to divert the bulk of its profits to a stateless head office whose activities consisted “solely of occasional board meetings”, Ireland approved a deal where Apple would pay an effective tax rate as low as 0.005 per cent. This, says the commission, is selective tax treatment favouring one business, amounting to illegal state aid.

Ireland, unsurprisingly, is looking to appeal the ruling in order to continue its relationship with Apple (which employs nearly 6,000 people across Ireland) as well as remain attractive to other global businesses.

Slowly, the loopholes appear to be closing – similar rulings were made last year by the commission against Luxembourg and the Netherlands who were held to have granted selective tax advantages to Fiat Finance and Trade and Starbucks, respectively. Investigations are still ongoing into the tax treatment offered by Luxembourg to both Amazon and MacDonald’s.

In the UK, HMRC recently announced a consultation for further regulation whereby accountants and lawyers promoting aggressive tax avoidance could be liable for financial penalties of up to 100 per cent of the avoided tax if their schemes are successfully challenged by the courts.

However, in the short term, we’re left with a mess. After announcing the decision against Apple, Margrethe Vestager – Europe’s competition commissioner – said it was now up to other countries, both in and outside the EU, to use the commission’s decision as a basis of their own sub-claims on Apple’s Irish back taxes.

Any joint international action to combat aggressive tax avoidance is a fragile alliance at best. Rather than promoting a coordinated response, the European Commission’s ruling could inspire a free-for-all of claims.

Andy Moseby is corporate partner at Kemp Little LLP