On July 15, Apple won a years-long appeal with Ireland over €13 billion (or $15.4 billion U.S.) in taxes due in Ireland. The General Court of the European Union officially reversed an earlier decision by the European Commission that would have required Apple to pay those taxes in Ireland. In 2016, the European Commission found in favor of Ireland where Apple Sales International (ASI) and Apple Operations Europe (AOE) were incorporated, stating that Apple had not paid the required taxes.
While the General Court agreed with some of the European Commission’s findings, the General Court did not believe the Commission met the “requisite legal standard” or show that Apple had received a “selective economic advantage” by Irish tax authorities.
European Union’s statement
Margrethe Vestager, the European Union’s executive vice-president and competition commissioner, made a statement about the new ruling.
“Today’s judgment by the General Court annuls the Commission’s August 2016 decision that Ireland granted illegal State aid to Apple through selective tax breaks. We will carefully study the judgment and reflect on possible next steps.
“The Commission’s decision concerned two tax rulings issued by Ireland to Apple, which determined the taxable profit of two Irish Apple subsidiaries in Ireland between 1991 and 2015. As a result of the rulings, in 2011, for example, Apple’s Irish subsidiary recorded European profits of US $22 billion (c.a. €16 billion) but under the terms of the tax ruling only around €50 million were considered taxable in Ireland.
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The Commission stands fully behind the objective that all companies should pay their fair share of tax. If Member States give certain multinational companies tax advantages not available to their rivals, this harms fair competition in the EU. It also deprives the public purse and citizens of funds for much needed investments – the need for which is even more acute during times of crisis.
In previous judgments on the tax treatment of Fiat in Luxembourg and Starbucks in the Netherlands, the General Court confirmed that, while Member States have exclusive competence in determining their laws concerning direct taxation, they must do so in respect of EU law, including State aid rules. Furthermore, the General Court also confirmed the Commission’s approach to assess whether a measure is selective and whether transactions between group companies give rise to an advantage under EU State aid rules based on the so-called ‘arm’s length principle’.
The Commission will continue to look at aggressive tax planning measures under EU State aid rules to assess whether they result in illegal State aid. At the same time, State aid enforcement needs to go hand in hand with a change in corporate philosophies and the right legislation to address loopholes and ensure transparency. We have made a lot of progress already at national, European and global levels, and we need to continue to work together to succeed,” said Vestager.
Vestager and the EU Commission can appeal the ruling if they choose, but it is not clear what they would do differently that would yield the desired result.
In a Bloomberg article on the ruling, Apple is quoted as saying the case “was not about how much tax we pay, but where we are required to pay it.”
This is good news for Apple as they prepare to appear before the House Judiciary Antitrust Subcommittee this week, along CEOs from Amazon, Facebook, Google and Twitter. While this ruling does not negate any other potential anticompetitive behavior, the ruling supports Apple’s claim that they play by the rules and do not have an unfair advantage. That remains to be seen. Regarding this matter in particular, we will be curious to see if the EU Commission will appeal the ruling, or let the matter go in favor of battles they are more likely to win.