Cover note for Ireland Apple Escrow Fund 2018 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 24th April 2018. The Escrow Fund was the chosen mechanism to effect the recovery of the alleged State aid from the Apple companies arising from 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; and
• 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.

Over the course of Q2 and Q3 2018, Apple paid the Recovery Amount of €14,285 million into escrow. All income, expenses, gains and losses accrue to the Fund. The financial statements set out that the net assets of the Escrow Fund as at 31st December 2018 totalled €14,269 million, representing a decline in value of €16 million. This decline in value for the Fund reflects the current negative interest rate environment as illustrated by the consistent negative official ECB Overnight Deposit rate (-0.40%) and negative yields on highly rated euro-sovereign and quasi-sovereign bonds.

The Government profoundly disagrees with the European Commission’s analysis in this case and therefore an appeal is being brought before the European Courts. Such an appeal takes the form of an application to the General Court of the European Union, asking it to annul the Commission’s Decision. The written proceedings have now concluded. A date for an oral hearing is awaited, the timing of which is entirely at the discretion of the Court. Apple has also lodged its own separate annulment application with the General Court of the European Union.

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.