Apple
(LUXEMBOURG) – The EU’s General Court annulled Wednesday a 2016 Commission decision to make Apple pay Ireland some EUR 13 billion in back taxes in compensation for what Brussels said had been illegal state aid.
The EU’s second highest court ruled that the Commission had not shown “to the requisite legal standard” that Apple had enjoyed advantage from the payments which distorted or threatened to distort competition in the EU single market under the EU’s state aid rules.
The Commission in 2016 adopted a decision over two tax rulings from the Irish Revenue in 1991 and 2007 in favour of Apple Sales International (ASI) and Apple Operations Europe (AOE), which were companies incorporated in Ireland but not tax resident in Ireland.
The contested tax rulings endorsed the methods used by ASI and AOE to determine their chargeable profits in Ireland, relating to the trading activity of their respective Irish branches. The 1991 tax ruling remained in force until 2007, when it was replaced by the 2007 tax ruling. The 2007 tax ruling then remained in force until Apple’s new business structure was implemented in Ireland in 2014.
By its decision, the Commission considered that the tax rulings in question constituted state aid unlawfully put into effect by Ireland. The aid was declared incompatible with the EU’s internal market, and the EU executive demanded recovery by Ireland of the aid in question.
The Commission said Ireland had granted Apple 13 billion euro in unlawful tax advantages. Ireland (Case T-778/16) and ASI and AOE (Case T-892/16) claimed that the General Court should annul the Commission’s decision.
With its judgment, the General Court is annulling the contested decision because it says the Commission did not succeed in showing to the requisite legal standard that there was an advantage for the purposes of Article 107(1) TFEU.
The Commission, it has ruled, was wrong to declare that ASI and AOE had been granted a selective economic advantage and, by extension, State aid.
The General Court does endorse the Commission’s assessments relating to normal taxation under the Irish tax law applicable in the present instance, in particular having regard to the tools developed within the OECD, such as the arm’s length principle, in order to check whether the level of chargeable profits endorsed by the Irish tax authorities corresponds to that which would have been obtained under market conditions.
However, the Court considers that the Commission incorrectly concluded, in its primary line of reasoning, that the Irish tax authorities had granted ASI and AOE an advantage as a result of not having allocated the Apple Group intellectual property licences held by ASI and AOE, and, consequently, all of ASI and AOE’s trading income, obtained from the Apple Group’s sales outside North and South America, to their Irish branches. According to the General Court, the Commission should have shown that that income represented the value of the activities actually carried out by the Irish branches themselves, in view of, inter alia, the activities and functions actually performed by the Irish branches of ASI and AOE, on the one hand, and the strategic decisions taken and implemented outside of those branches, on the other.
In addition, the General Court considers that the Commission did not succeed in demonstrating, in its subsidiary line of reasoning, methodological errors in the contested tax rulings which would have led to a reduction in ASI and AOE’s chargeable profits in Ireland. Although the General Court regrets the incomplete and occasionally inconsistent nature of the contested tax rulings, the defects identified by the Commission are not, in themselves, sufficient to prove the existence of an advantage for the purposes of Article 107(1) TFEU.
Furthermore, the General Court considers that the Commission did not prove, in its alternative line of reasoning, that the contested tax rulings were the result of discretion exercised by the Irish tax authorities and that, accordingly, ASI and AOE had been granted a selective advantage.
