After almost 10 years of litigation, the long-running and controversial legal battle between the Apple corporation and the European Union over the tech giant’s tax arrangements with successive Irish governments finally came to an end last month. In a surprise ruling, the European Court of Justice, or ECJ, concluded that Apple’s Irish tax deal contravenes EU state aid rules and ordered the company to pay almost 14 billion euros, or $15.3 billion, in back taxes and interest to the Irish state, the biggest award of its kind in the history of the bloc.
The intricacies of the Apple case are best understood in the context of the recent economic transformation of Ireland, a country that had been trapped for decades in a cycle of recession, emigration and underdevelopment. A key element of the economic revolution that reversed the country’s fortunes in the late 1990s was a massive increase in foreign direct investment, or FDI, particularly from U.S. multinational corporations attracted to the island by its 12.5 percent corporate tax rate. Introduced in 1997, the rate significantly undercut the rest of the EU and gave Ireland a major competitive advantage in attracting FDI. Since then, the country has become home to more than 970 U.S. companies, employing more than 400,000 people and accounting for more than a quarter of all tax revenue raised by the state. Some of the biggest names in tech have also established their headquarters in Ireland, including Microsoft, Dell, Yahoo, Facebook, IBM, Intel and, of course, Apple.
The ECJ ruling centers on Apple’s practice of setting up special units in Ireland to handle intellectual property licenses for the company’s sales outside of North America. Back in 2016, the European Commission ruled that these units had been given “a selective advantage”—effectively a sweetheart tax deal that no other company was offered—that contravened EU rules on state aid. As a result, Apple paid “an effective tax rate in 2014 of about 0.005%.” The Irish government, faced with the reputational damage of being labeled a tax haven, rejected the commission’s ruling and, in an extraordinary turn of events, joined Apple in the lengthy appeal process against the commission’s decision, even though a legal victory would mean foregoing 13 billion euros. That appeal finally ran out of road last month when the ECJ, in its final judgment on the matter, ruled that “Ireland granted Apple unlawful aid which Ireland is required to recover.”