Apple has been ordered to pay back €13 billion ($14.4 billion) worth of tax to Ireland by the European Court of Justice. Two of its subsidiaries illegally received tax benefits between 1991 and 2014, as these benefits were not available to other companies.
Ireland issued tax rulings favouring Apple Sales International and Apple Operations Europe in 1991 and 2007, respectively. Both companies were incorporated in Ireland but were not tax residents. The rulings allowed them to calculate their taxable profits in the country based only on the activities of the Irish branches.
However, because their head offices were outside Ireland and decisions related to the intellectual property licences were made in the U.S., the rulings meant that profits generated by the companies’ IP licences were excluded from their tax base.
Other Irish companies could not benefit from the same rulings. Apple paid a corporation tax rate of 0.0005% in 2014, while Ireland’s headline rate has been 12.5% since 2003.
“Ireland granted Apple unlawful aid which Ireland is required to recover,” judges said in a press release.
Vestager, Apple React to News
The European Commissioner for Competition, Margrethe Vestager, ordered that Apple pay back the taxes linked to their IP licences way back in 2016, as the tax rulings were illegal. At the time, CEO Tim Cook dubbed the claims “total political crap.”
However, the order was annulled by the General Court of the European Union in 2020 — a court lower than the ECJ — as “the Commission had not sufficiently established that those companies enjoyed a selective advantage.”
SEE: Apple to Allow EU Users to Delete Pre-Installed Apps on iOS 18, Complying With Digital Markets Act
On Tuesday, the ECJ set aside the general Court’s ruling. It said that the Commission had sufficiently proven to the General Court that Apple had been given an advantage and it had not misinterpreted Irish law. The ECJ also said that the General Court had wrongly upheld complaints from Ireland, ASI, and AOE regarding the Commission’s assessment.
Upon the news of the ECJ’s long-awaited ruling, Vestager posted on X: “Today is a huge win for European citizens and tax justice.”
In a press conference following the ruling, she added, “These tax rulings attributed the bulk of the taxable profits to two Irish subsidiaries of Apple to what was a stateless head office. These head offices existed only on paper — no tables, no chairs, no activities. The profits were thus not taxed anywhere.”
Apple, which maintains it paid $577 million in tax between 2003 and 2014 — 12.5% of the profit it generated in Ireland — said that “there has never been a special deal” with the country in a statement to the BBC.
It added: “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 U.S. We are disappointed with today’s decision as previously the General Court reviewed the facts and categorically annulled this case.”
The ruling also put a dampener on the Sept. 9 unveiling of Apple’s new tech lineup, including iPhone 16, Apple Watch Series 10, and AirPods 4.
SEE: iPhone 16 Cheat Sheet: Key Features, Price, Hacks & More
ECJ’s decision called ‘a dramatic one’
The Irish government has one of the lowest corporate tax rates in the E.U. at 12.5%, making it a popular choice for tech companies’ European headquarters. Apple’s base for Europe, the Middle East, and Africa is located in Cork, while Meta’s is in Dublin.
Ireland appealed the European Commission’s 2016 decision, saying there were “no intellectual property related activities in Ireland,” so the profits were not attributable to Apple’s Irish branches. It has also claimed that its treatment of IP taxation is in line with other members of the Organisation for Economic Co-operation and Development, according to Reuters.
Alex Haffner, a competition partner at Fladgate, told TechRepublic via email: “The ECJ’s decision is a dramatic one not least as it overturns the findings of the E.U. General Court beneath it, which had upheld Apple’s appeal against the Commission’s findings that it had received unlawful state aid through tax advantages granted by the Irish government.
“In essence, the ECJ has found that the General Court adopted too literal an approach when it decided that the Commission had not shown to the requisite standard that Apple’s revenues outside the U.S. should be attributable to Ireland and to an appropriate level of tax. Rather, the ECJ was prepared to look at the substance of the situation and whether, overall, Apple was being treated more favourably by the Irish government than it should have been.
“From a financial perspective, Apple will now have to forgo €13 billion that has been sitting in escrow pending the outcome of the case. But perhaps of more relevance will be the sense that, again, the E.U. authorities and courts are prepared to flex their (collective) muscles to bring Big Tech to heel where necessary.”
On June 24, Apple became the first tech giant to be formally charged by the European Commission for violating the Digital Markets Act.
The Commission found that Apple has three sets of business rules that ultimately prevent iOS app developers from directing their users towards third-party purchase options. This goes against the DMA, which states that developers should be able to steer their customers towards purchasing options outside of the App Store easily and free of charge.
Apple took a series of actions in January to comply with the DMA, including changing its payment system for app sellers in the EU and letting go of the hold its App Store has over iOS app distribution in the EU. It also started prompting iOS users in the EU to select a preferred browser instead of defaulting to Safari. Nevertheless, it was fined €1.84 billion in March for imposing anti-steering provisions on music streaming apps.
Google’s appeal against a €2.42 billion antitrust fine has also been thrown out by the ECJ
Apple was not the only tech giant in the ECJ’s crosshairs on Tuesday: It also upheld a €2.42 billion antitrust fine levied against Google’s parent company, Alphabet, affirming an earlier ruling of the General Court.
The fine was imposed by the European Commission in 2017 after finding that Google had abused its dominant position in online search markets by favouring its own comparison shopping service over its European rivals.
“Google’s conduct was discriminatory and did not fall within the scope of competition on the merits,” the ECJ said in the press release.
Vestager called the ruling a “big win for digital fairness” in a post on X. Google told the BBC it was disappointed with the decision and that it had made changes to comply with the Commission in 2017.
Google has faced E.U. antitrust fines totaling €8.25 billion during Vestager’s tenure as commissioner. A €4 billion fine in 2018 for forcing Android device manufacturers to pre-install Google Search and Chrome was the biggest in E.U. antitrust history.
The European Commission also told Google that a “mandatory divestment” of part of its ad tech business would be the only way to address its own competition concerns, after disclosing its preliminary view that the company had breached E.U. antitrust rules in March.
An E.U. investigation into the way Google’s compliance with the new Digital Markets Act remains ongoing. Regulators say that it is promoting its own services above third parties’ in search results and therefore is “gatekeeping.”
In March, Google temporarily removed some Search widgets, such as Google Flights, to allow more access to individual businesses in response to the DMA coming into force.
SEE: Microsoft Charged for Violating EU Antitrust Rules by Bundling Teams With Other Office Products
But it’s not just the E.U. that has taken issue with Google’s ad tech practices. Last week, the U.K.’s Competition and Markets Authority provisionally ruled that Google’s dominance in the ad tech market is detrimental to competitors and could fine it up to 10% of its global annual turnover as a result.
Google is also seeking to appeal a U.K. court decision from June, which allowed a lawsuit from Ad Tech Collective Action LLP to proceed to trial. The collective of online publishers alleges that Google has abused its dominant position in the digital advertising technology sector, leading to losses worth £13.6 billion.
The U.S. Department of Justice and state attorneys general initiated an antitrust investigation in 2020, alleging Google “has unlawfully used the distribution agreements to thwart competition.” That investigation remains ongoing.
In August, a federal judge ruled that the tech company holds a monopoly on general search services and text ads and has broken antitrust law.