Apple Inc. does not have to pay €13.1 billion ($14.9 billion) in Irish taxes it purportedly owes, for now anyway, because Ireland did not grant the tech giant prohibited tax breaks, the EU General Court held in a 15 July decision (Ireland v. European Commission, No. T‑778/16 (EU Gen. Ct. 7/15/20).
The decision, which can be appealed to the EU Court of Justice, annuls a ruling by the European Commission. The Commission found in 2016 that Ireland improperly provided state aid to Apple in the form of selective tax breaks by agreeing to the company’s taxpayer-favourable advance pricing agreements (APAs). Under the APAs, Apple paid billions of euros less in Irish corporate taxes than it otherwise would have. The Commission said Ireland must recover the back taxes from Apple, but the court disagreed.
The case against Apple is one of numerous tax-related cases brought against multinationals by the European Commission’s top competition regulator, Margrethe Vestager.
The ruling in Apple’s favour comes at a time when governments worldwide are engaged in a broader discussion about what can be done to prevent tax avoidance by multinational enterprises. In particular, the Organisation for Economic Co-operation and Development (OECD) is seeking to create a global framework that will deter base erosion and profit shifting.
The overturning of the €13.1 billion recovery order is not only a legal victory for Silicon Valley-based Apple but also a vindication of sorts for Ireland, which insisted that the APAs in question complied with EU law. Ireland supported Apple in the case, even though, if a violation were found to have occurred, the technology company would have to pay Ireland billions of euros in back taxes.
Responses to the decision
After the decision was handed down, Vestager issued a statement saying she would carefully study the ruling and reflect on possible next steps, because, as noted above, the case can be appealed to the Court of Justice.
She added that “[i]f Member States give certain multinational companies tax advantages not available to their rivals, this harms fair competition in the EU.” For this reason, “[t]he Commission will continue to look at aggressive tax planning measures under EU State aid rules to assess whether they result in illegal State aid”, Vestager stressed.
Apple spokesperson Josh Rosenstock said after the decision that “[t]his case was not about how much tax we pay, but where we are required to pay it”.
Alleged selective tax breaks
The European Commission’s case against Apple rested on competition law, not a violation of tax rules, per se. The key question was whether Ireland, where Apple’s European operations are based, provided the tech company a tax break that distorted or threatened to distort competition.
The European Commission’s 2016 ruling found that Ireland conferred selective state aid upon Apple’s Irish subsidiaries in violation of Article 107(1) of the Treaty on the Functioning of the European Union (TFEU). That provision states: “[A]ny aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings … [is] incompatible with the internal market”, with certain exceptions.
Disagreeing with the European Commission, the EU General Court found that the evidence did not show that Ireland provided selective state aid. Ultimately, the Commission failed to prove “that, by issuing the contested tax rulings, the Irish tax authorities granted [the Irish Apple subsidiaries] an advantage for the purposes of Article 107(1) TFEU”, the court said.
— Dave Strausfeld, J.D., (David.Strausfeld@aicpa-cima.com) is an FM magazine senior editor.
