The EU’s top court will rule whether the European Commission was right to demand that €13bn (£11bn) in “illegal” tax breaks for Apple should be repaid, in a judgment likely to have far-reaching effects on “sweetheart” deals for large multinationals.
A ruling due on Tuesday from the European court of justice (ECJ) may bring an end to a bitter legal saga that began in 2016 when the EU competition chief, Margrethe Vestager, concluded the iPhone maker had benefited from billions worth of unfair tax breaks from the Irish government.
Apple, which has been based in Cork since 1980, was found by the EU competition watchdog to have benefited from tax rulings from the Irish authorities that meant in 2014 it in effect paid a tax rate of 0.005%. Vestager ordered Ireland to recoup €13bn plus interest in the largest-ever tax order in the EU.
But in 2020, the European general court annulled that decision, handing victory to Apple and Dublin. The general court argued that the EU executive had not proved that Apple derived a competitive advantage from the tax rulings. Vestager appealed against that judgment and now awaits the verdict of the EU’s highest court on Tuesday.
The 2020 annulment was a massive blow to Vestager, who forged her reputation as EU commissioner by taking on Fiat, Amazon and Starbucks over their tax bills. She is standing down at the end of the year, after two terms as the bloc’s top enforcer of competition policy. Not all her decisions have stood the test of time. In 2022 the court found against the commission, ruling that Fiat Chrysler did not have to pay back €30m in taxes to Luxembourg.
After that setback, she said in 2023 that court rulings – including the Fiat decision – had brought “clarification” over how the commission carried out investigations, but affirmed she was not backing down over “selective tax subsidies”, unequal treatment that distorts the EU’s single market. “Simply put, aggressive tax planning is still with us,” she said.
But later that year she lost again, when the ECJ sided with Amazon, overturning her order for the company to repay €250m to Luxembourg.
In a positive sign for the commission, however, last autumn a senior lawyer at the court recommended that the 2020 Apple appeal should be annulled and referred back to the lower court for a new decision. In a non-binding opinion, the advocate-general, Giovanni Pitruzzella, concluded that the general court had made mistakes when deciding on Apple and Ireland’s appeals and should think again.
The ECJ follows the advice of its advocates general most of the time.
On Tuesday, the ECJ could instruct the general court to revisit the case, or issue a definitive judgment drawing a line under the saga.
Win or lose, the decision could have a profound impact on how easily EU countries can grant sweetheart tax deals to multinational companies in the hope of gaining jobs and investment.
Fiona Scott Morton, a professor of economics at Yale University, now working at the Bruegel thinktank in Brussels, said competition to offer tax breaks for multinationals was an unsolved problem: “That makes the internal market less fair and makes for distorted choices on the part of lots of players. So I think it’s a problem.”
The US economist was last year named as Vestager’s chief economist but withdrew from the post within hours after a political backlash in France and the European parliament over her nationality and previous consultancy work, including for Apple in 2018. She now does consultancy work for Microsoft.
EU member states, she said, ought to compete on public services rather than “a race to the bottom” via tax breaks. “What you’d like is have cities and member states be competing for corporations on the basis of things like schools and parks and public transit and art museums, things that are helpful and beneficial to the general population, rather than taxation which derails the public sources of finance.”
EU law on state aid, she said, was intended “to stop member states from offering subsidies to companies to locate or build a factory or employ people or whatever it might be inside their jurisdiction and causing an unhealthy race to the bottom”.
If the commission lost its case, she predicted that legislation to stop a race to the bottom on taxation would follow. “If society wants to control that situation, then they have to pass a law.”