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EU General Court Quashes Decision Against Apple Tax Rulings

by Jason Gorringe,, London

17 July 2020

Apple and the Irish Government have been successful in having overturned a European Commission decision that two tax rulings granted to the company by the Irish Government were unlawful.

Following an in-depth state aid investigation launched in June 2014, the European Commission concluded that the tax rulings (issued in 1991 and in 2007) "substantially and artificially lowered the tax paid by Apple in Ireland since 1991." Apple was required to pay EUR13bn (USD14.8bn) in back taxes into an escrow account set up by the Irish Government, along with interest of EUR1.2bn, pending the outcome of the Government and Apple's appeal.

The European Commission had argued that Ireland's endorsement of Apple's Irish tax arrangements had enabled Apple to pay less tax than competing companies would be able to pay – that it had granted it a "selective tax advantage".

According to the EU's summary of the complex case, Apple set up its sales operations in Europe so that customers were contractually buying products from Apple Sales International (ASI) in Ireland, rather than from the shops that physically sold the products to customers in the EU. The rulings endorsed a split of the profits for tax purposes in Ireland. According to the European Commission, "Under the agreed method, most profits were internally allocated away from Ireland to a 'head office' within Apple Sales International. This 'head office' was not based in any country and did not have any employees or own premises. Its activities consisted solely of occasional board meetings [and] only a fraction of the profits of Apple Sales International were allocated to its Irish branch and subject to tax in Ireland."

The EC said: "The tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market. This is due to Apple's decision to record all sales in Ireland rather than in the countries where the products were sold."

The Commission considered that the tax rulings issued by Ireland endorsed an artificial internal allocation of profits that had "no factual or economic justification".

It decided that the two tax rulings had granted Apple a selective tax advantage that amounted to illegal state aid under Article 107 of the Treaty on the Functioning of the EU (TFEU).

However, the EU's General Court on July 15 decided, for Ireland (Case T-778/16) and Apple's Irish branches (Case T-892/16), that the European Commission had not succeeded in showing to the requisite legal standard that there was an advantage for the purposes of Article 107(1) TFEU. It consequently decided to annul the Commission's contested decision.

Welcoming the ruling from the General Court, the Irish Government stated: "Ireland has always been clear that there was no special treatment provided to the two Apple companies. The correct amount of Irish tax was charged in line with normal Irish taxation rules. Ireland appealed the Commission decision on the basis that Ireland granted no State aid and the decision today from the Court supports that view."

The European Commission is expected to appeal the General Court's decision before Europe's top court, the European Court of Justice.

TAGS: court | tax | European Commission | Ireland | interest | law | employees | transfer pricing | European Union (EU) | Europe | BEPS

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