The EU’s top court has sided with the European Commission in its bid to make Apple pay billions of euros of back taxes to the Republic, delivering a big legal defeat to the Irish Government and the US technology giant.
The European Court of Justice (ECJ) said on Tuesday it has “set aside” a ruling by the second-highest court, the General Court, four years ago, which had quashed the commission’s decision that Apple owed the Republic €13 billion in taxes. The long-running dispute is the world’s largest ever antitrust case.
The ECJ said that the lower court in Luxembourg had “erred” when it ruled the commission had not proved its case sufficiently.
“After setting aside the judgment under appeal, the Court of Justice considers that the state of the proceedings is such that it may give final judgment in the actions,” the Luxembourg-based ECJ said in a statement. “In that context, the court confirms in particular the commission’s approach.”
The decision will pave the way Apple to turn over to the Government money that has been held in an escrow account in Dublin ever since it was ordered to collect the taxes pending the outcome of appeals. At the end of last year, the escrow account held almost €13.8 billion.
Margrethe Vestager, the EU commissioner for competition, said at a press conference in Brussels judgment was a “big win” for the commission and “tax justice” and said the escrow account “must be released to the Irish State”.
The Danish politician, who is standing down at the end of the year after two terms in office, said the Apple case showed how some countries relied on loopholes and differences between tax regimes to become a “more attractive destination” to corporations.
Despite international tax reforms in recent times, she said that aggressive tax planning by corporations was still “widespread”, and singled out Ireland, the Netherlands and Luxembourg as three countries who remain “central” to profit shifting by multinationals.
The Government said it will “respect” the ECJ findings and start the process of transferring the assets in the escrow account, mainly made up of European government bonds rather than cash.
“The Irish position has always been that Ireland does not give preferential tax treatment to any companies or taxpayers,” it said in a statement.
It also sought to play down the potential reputational damage caused by the court ruling on the State’s corporate tax regime, saying the Apple case was “now of historical relevance only”, and that the Republic has made number of tax rule changes over the past decade. The case relates to the US group’s Irish tax affairs between 1991 and 2014.
“Ireland is an active participant in international tax discussions and has also made necessary changes to its taxation regime as international tax rules have developed over time,” the Government said.
Still, the judgment marks a rare court victory for Ms Vestager in her otherwise failed bid to use state-aid rules over the past decade to make multinational companies Fiat, Amazon and Starbucks to pay allegedly uncollected taxes in various EU countries.
Ms Vestager ordered Apple in 2016 to pay the State more than €13 billion in alleged back taxes, covering 2004-2014, as she claimed the Republic had given the US tech giant illegal tax aid.
[ Apple’s €13bn Irish tax case timelineOpens in new window ]
The decision centred on two tax opinions, or “rulings” as they are referred to, handed out by Revenue in 1991 and 2007 to Apple subsidiaries in Ireland. The commission said the rulings gave Apple an unfair and select advantage over other corporate taxpayers.
A legal appeal by Ireland and Apple against the commission’s decision resulted in a ruling by the EU general court in 2020 that Ms Vestager’s officials fell short of showing to “the requisite legal standard” that Apple had received illegal State aid.
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The advocate general concluded the general court had made a series of errors of law in its ruling.
A spokesman for Apple, which has been present in the Republic since 1980 and currently employs over 6,000 people in Cork, said on Tuesday that the case “has never been about how much tax we pay, but which Government we are required to pay it to”. The US group says that it has paid over $20 billion (€18.2bn) in tax to the US on the very same profits the commission insisted should have been taxed in Ireland.
“We always pay all the taxes we owe wherever we operate and there has never been a special deal. Apple is proud to be an engine of growth and innovation across Europe and around the world, and to consistently be one of the largest taxpayers in the world,” he said.
“The European Commission is trying to retroactively change the rules and ignore that, as required by international tax law, our income was already subject to taxes in the US. We are disappointed with today’s decision as previously the General Court reviewed the facts and categorically annulled this case.”
The main thrust of the commission’s case was that Revenue’s 1991 and 2007 “rulings” gave the US technology giant an unfair and select advantage over other corporate taxpayers, as it allowed the group to channel most European sales through employee-less “head office” parts of two Cork-based based subsidiaries, Apple Sales International (ASI) and Apple Operations Europe (AOE), which were non-resident for tax purposes.
Only the activities of Irish “branches” within the same units were subject to tax in the State.
The commission claimed that valuable intellectual property (IP) behind Apple products lay inside the Irish branches of ASI and AOE, meaning that most of the profits were taxable by Revenue in Dublin. Apple, on the other hand, argued it was held outside the branches – and ultimately controlled from group headquarters, in Cupertino, California.
A legal appeal by Ireland and Apple against the commission’s decision resulted in a ruling by the EU general court in 2020 that Ms Vestager’s officials failed to prove the tax was owed at all. The commission fell short of demonstrating to “the requisite legal standard” that Apple had received illegal state aid through a “sweetheart” tax deal that gave it an unfair advantage over other companies, the court rules.
However, the ECJ ruled on Tuesday that the General Court made errors in its ruling.
“In particular, the general court erred when it ruled that the Commission’s primary line of reasoning was based on erroneous assessments of normal taxation under the Irish tax law applicable in the case, and when it upheld the complaints raised by Ireland and by ASI and AOE regarding the commission’s factual assessments of the activities of the Irish branches of ASI and AOE and of activities outside those branches,” it said.
The ECJ has also ordered that Ireland and Apple bear their own costs and pay costs incurred by the commission during the appeal.