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Apple & Ireland Win Appeal in EU Illegal State Aid Case

Apple Ireland Decision

Wednesday was a good day for the GAFAs, Ireland and their kin.

The EU’s second highest court decided that Apple did not receive illegal state aid from Ireland and will not have to pay close to 13 billion Euros (plus 1.2 billion Euros in interest) in back taxes to Irish authorities.

According to the EU’s General Court, the European Commission failed to provide sufficient proof that Apple had benefitted from a preferential tax arrangement in Ireland.

More specifically, the Court asserted that the European Commission did not 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.”

As reported by Bloomberg Tax, EU “regulators failed to prove that Apple’s tax treatment by Ireland was an unfair subsidy and were wrong to find Apple’s Irish branches were responsible for profits it made in Europe” as “it was apparent…that research and development, strategies for new products and distribution in Europe were led out of Apple’s Cupertino headquarters in California.”

In a statement following this surprising decision, Apple reiterated, “This case was not about how much tax we pay, but where we are required to pay it," adding that the company is “proud to be the largest taxpayer in the world, as we know the important role tax payments play in society.”

Similarly, the Irish government reaffirmed that Apple had never received a sweetheart tax deal and that “the correct amount of Irish tax was line with normal Irish taxation rules.”

Apple Ireland Tax

Are There Other Options Available to the EU?

A bloc of politicians led by the European Commission’s Head of Competition, Margrethe Vestager, now have to regroup and find new ways to challenge what they deem as unfair tax competition within the EU.

In a press release, Vestager said the EU “will carefully study the judgment and reflect on possible next steps,” adding that “the fight against aggressive tax planning is a marathon, this is not a sprint, and this marathon…does take place on very hilly grounds."

One option, which Taxlinked wrote about earlier this week, is applying never-before-used Article 116, which deals with tax scheme distortions and only requires a qualified EU majority to be put in effect.

Talking about this latest setback, Spanish MEP Luis Garicano said, “We are running into a brick wall when it comes to tackling this divisive problem of excessive tax competition between member states.”

“With the state aid route now essentially dead, the commission is right to look at using internal market rules to get around the need for unanimity. It is the final bullet left, and they need to use it,” he added.

Vestager reiterated that the European 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.”

Apple Ireland Appeal EU

Will the EU File an Appeal to this Latest Decision?

The European Union now has two weeks to lodge an appeal with the European Court of Justice, the region’s equivalent of a Supreme Court.

However, analysts believe it will ultimately prove difficult for the EU to win this drawn-out battle.

Speaking to the Financial Times, Alfonso Lamadrid of Garrigues law firm in Spain said: “A commission appeal before the European Court of Justice would be an uphill battle. The judgment is carefully crafted on points of law and is in line with Court of Justice precedents, which place increased emphasis on the commission’s burden of proof. This outcome shows that the European system of judicial review works, no matter the nationality of the companies affected and the political interests at stake.”

Similarly, Aisling Donohue, a partner with Andersen in Ireland, believes “it is difficult to see an appeal to the Court of Justice as such an appeal would be required to be on a point of law.”

In an article for MNE Tax, Donohue discusses some of the options available to the EU in terms of an appeal.

She writes: “It may be possible for the Commission to assert that the General Court was incorrect in determining that the exclusion of the IP assets from the branches was incorrect as a matter of law and, on that basis, an appeal might be possible.”

Furthere, Donohue says, “It may also be possible for the Commission to initiate new proceedings for some of the years at issue using the guidance delivered by the court, but if they accept that the IP should be excluded then it is unlikely that any new determination of aid would be anything close to €13bn.”

Grab your popcorn—this saga has not wrapped up yet!