European Commission vs. Ireland and Apple, July 2020, General Court of the European Union, Case No. T-778/16 and T-892/16

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In a decision of 30 August 2016 the European Commission concluded that Ireland’s tax benefits to Apple were illegal under EU State aid rules, because it allowed Apple to pay substantially less tax than other businesses.

The decision of the Commission concerned two tax rulings issued by Ireland to Apple, which determined the taxable profit of two Irish Apple subsidiaries, Apple Sales International and Apple Operations Europe, between 1991 and 2015. As a result of the rulings, in 2011, for example, Apple’s Irish subsidiary recorded European profits of US$ 22 billion (c.a. €16 billion) but under the terms of the tax ruling only around €50 million were considered taxable in Ireland.

Ireland appealed the Commission’s decision to the European Court of Justice.

The Judgement of the European Court of Justice

The General Court annuls the Commission’s decision that Ireland granted illegal State aid to Apple through selective tax breaks because 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.

According to the Court, the Commission was wrong to declare that Apple Sales International and Apple Operations Europe had been granted a selective economic advantage and, by extension, State aid.

The Court considers that the Commission incorrectly concluded, in its primary line of reasoning, that the Irish tax authorities had granted Apple’s Irish subsidiaries an advantage as a result of not having allocated the Apple Group intellectual property licences to their Irish branches.

According to the 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 the activities and functions actually performed by the Irish branches of the two Irish subsidiaries, on the one hand, and the strategic decisions taken and implemented outside of those branches, on the other.

In addition, the 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 chargeable profits in Ireland.

The defects identified by the Commission in relation to the two tax rulings are not, in themselves, sufficient to prove the existence of an advantage for the purposes of Article 107(1) TFEU.

Furthermore, the 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, Apple Sales International and Apple Operations Europe had been granted a selective advantage.

In September 2020 The European Commission has decided to appeal the judgement to the European Court of Justice.

 

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