Cover note for Ireland Apple Escrow Fund 2019 Financial Statements

The Ireland Apple Escrow Fund is governed by the Escrow Framework Deed, which was signed by the Minister for Finance, Apple Services International (ASI), and Apple Operations Europe (AOE) on 24 April 2018. The Escrow Fund was the chosen mechanism to effect the recovery of the alleged State aid from the Apple companies arising from the European Commission Decision of 30 August 2016 in Case SA.38373 (Decision C(2016)5605). The Escrow Framework Deed sets out the detailed legal agreement regarding the recovery of the alleged State aid and the framework for oversight, safekeeping and management of the Fund.

The Minister for Finance delegated certain of his functions in relation to the Fund to the National Treasury Management Agency (NTMA) by way of orders issued pursuant to Section 28 of the NTMA (Amendment) Act 2000.

These functions include inter alia:

• conduct, in conjunction with Apple, of the procurement processes for escrow agent and custodian services, and for investment management services
• the negotiation and execution of, and performance of obligations under the escrow agent and custodian agreement
• the negotiation and execution of, and performance of obligations under investment management agreements
• the approval of amendments to the investment policy from time to time
• the appointment of the Ireland members of the investment committee and other rights and obligations in relation to that committee
• the oversight of the investment and management of the Fund
• the preparation and issuing of certain release instructions
• the approval of Fund operational procedures

In line with Part 4 of the National Treasury Management Agency (Amendment) Act 2000, the financial statements of the Fund are prepared pursuant to Section 28(5) of that Act. The Minister has directed that the NTMA prepares and keeps accounts for the Escrow Fund on the basis of the International Financial Reporting Standards (IFRS) accounting standard. The accompanying financial statements are the fulfilment of this direction.

The investment policy for the Fund was agreed by the Minister for Finance and Apple. The Fund is managed by three investment managers, with management and investment oversight jointly through the Investment Committee for the Fund, comprising an equal number of members from the NTMA and Apple.

The investment policy establishes the investment principles and parameters for investment of the Fund, which inform the investment manager mandates that the investment managers are required to adhere to. The investment objective is to preserve capital to the greatest extent possible in light of the prevailing market conditions. In addition, the Escrow Fund is managed in a manner designed to ensure adequate liquidity is maintained to meet liabilities in respect of the payment of fees and expenses, and in relation to all releases to be made from the Escrow Fund.

For these reasons, the risk appetite in respect of the Fund as specified in the investment policy is "low", with investment permitted only in highly rated euro-denominated fixed income securities. The Fund is predominately invested in short to medium-term sovereign and quasi-sovereign bonds. The Investment Committee monitors the performance of the investment managers and the ongoing appropriateness of the investment policy.

The decision by the European Commission in relation to the State aid noted that profits subjected to tax in Ireland (for the period covered by the decision) could be reduced if Apple was required to pay taxes in another jurisdiction in respect of the same profits for this period. These adjustments are referred to as “third country adjustments” and are not dependent on the outcome of the legal proceedings in the European courts.

2019 was the first full financial year of operation for the Fund. The financial statements set out that the net assets of the Escrow Fund as at 31st December 2019 totalled €14,020 million. All income, expenses, gains, and losses accrue to the Fund. The €249 million decline in value since end-2018 is primarily due to a third country adjustment for an amount of approximately €209 million, which was transferred from the Fund. The remaining €40 million decline for the year reflects the current negative interest rate environment and negative yields on highly rated euro-sovereign / quasi-sovereign bonds together with fund operating expenses.

The government profoundly disagrees with the European Commission’s analysis in this case and has therefore brought an appeal before the European Courts. Such an appeal takes the form of an application to the General Court of the European Union (GCEU), asking it to annul the Commission’s Decision. Apple lodged its own separate annulment application with the GCEU. Both annulment applications were joined, with the written proceedings concluded and the subsequent oral hearings taking place on 17 and 18 September 2019. The judgement of the GCEU is awaited.

The timeline for the Ireland Apple Escrow Fund is aligned to the ongoing legal cases in that the Escrow Fund will remain in place pending a final determination in the European Courts over the validity of the Commission’s Decision.

Department of Finance

1 July 2020