In a significant legal development, the European Union’s highest court, the European Court of Justice (ECJ), has supported the European Commission’s attempt to compel global tech behemoth, Apple, to pay billions in owed taxes to the Republic. This marks a substantial setback for both the US tech giant and the Irish Government.
The ECJ overturned the ruling of the General Court, the second most critical court in the EU, which had previously nullified the Commission’s claim that the Republic was owed €13 billion in taxes by Apple, four years ago. The ECJ found that the lower court in Luxembourg had demonstrated a ‘misjudgement’ by ruling that there wasn’t enough proof provided by the Commission for their claims.
Following the reversal, the ECJ announced in an official statement that the proceedings are in such a state that they may provide the final judgement, endorsing the Commission’s approach in the process.
This development could allow Apple to transfer the requested tax money to the Irish Government, which has been safeguarded in a Dublin escrow account ever since an order to collect the taxes was issued. As of the end of the previous year, the escrow account contained almost €13.8 billion.
This court decision symbolises an unusual triumph for the European Commission in the European Union courts, having been striving for the last ten years towards cracking down on large multinational corporations and making them pay purportedly unpaid taxes to various EU nations, through the implementation of state-aid rules.
EU competition commissioner Margrethe Vestager specifically directed Apple in 2016 to reimburse the Republic with over €13 billion, stated to be back taxes incurred between 2004 and 2014. She asserted that illegal tax aids had been provided to the US technological giant by the Republic.
The central issue of this decision centres on two tax rulings, known as ‘opinions’, granted by Revenue in 1991 and 2007 to Apple’s subsidiaries operating in Ireland. The European Commission argued that these rulings offered Apple an unjust and preferential advantage over other corporate taxpayers.
The 2020 ruling of the EU General Court was a result of a legal appeal by both Ireland and Apple against the Commission’s decision, which deemed Ms Vestager’s officials as unable to prove to the required legal degree that Apple had benefited from illicit State aid.
The advocate general criticised the general court’s verdict, stating it was laden with a succession of lawful inaccuracies. A representative for Apple, a company that has had a presence in the Republic since 1980 and currently employs more than 6,000 staff in Cork, stated on Tuesday that the crux of the case was not about the tax quantity paid, but determining the government to whom it was due. The US firm has purportedly remitted over $20 billion (£18.2bn) in taxes to the US, identical to the profits the committee insisted should be taxed in Ireland.
Apple emphasised its commitment to meeting tax obligations worldwide, without any special arrangements or favours. The tech giant emphasised its role as a driver of economic expansion and innovation globally, and its status as one of the world’s largest taxpayers. They expressed their discontent by alleging that the European Commission is seeking to retrospectively alter the regulations while ignoring that their income was taxed in the U.S. according to international tax law.
The commission’s main argument is that an unjust and selective advantage was accorded to the U.S. tech colossus through Revenue’s rulings in 1991 and 2007, that enabled most European sales to be siphoned into two Cork-based divisions without employees; Apple Sales International and Apple Operations Europe, which were non-residential for tax purposes.
Only Irish “branches” within those units were taxable in Ireland. The commission held that the valuable intellectual property responsible for Apple products was within the Irish branches of those divisions, implying that most profits would be taxable by Revenue in Dublin. However, Apple contested that it was held outside the branches and ultimately managed from the group’s headquarters in Cupertino, California.
A legal challenge by Ireland and Apple against the commission’s decision resulted in a 2020 ruling by the EU general court, stating that the commission failed to provide enough legal evidence that Apple owed any taxes. The court agreed that the commission did not adequately demonstrate that Apple received illegal state aid through a favourable tax deal that allowed it an unfair advantage over other companies.
On Tuesday, the European Court of Justice (ECJ) found that the General Court was mistaken in its judgement. One significant error identified was the conclusion that the Commission’s main argument was founded on incorrect evaluations of normal taxes according to Irish tax laws relevant to the case. Further, the General Court was wrong in supporting the objections made by Ireland and by the two organisations ASI and AOE. These objections pertained to the Commission’s factual evaluation of the operations of Irish branches of ASI and AOE, and activities beyond those branches. The ECJ also decreed that both Ireland and Apple should cover their own expenses and reimburse the commission for costs incurred during the appeal process.