On 15 July 2020, the General Court of the European Union overturned the European Commission’s decision that ordered Apple to pay a record EUR 13 billion in back taxes to the Irish government. This judgement represents a great victory for the U.S. tech giant and a big blow to the bloc’s crackdown on “sweetheart deals” between companies and countries in the European single market.
The case stems from a 2016 decision by the EC that stated Ireland had breached the EU state aid rules by enabling Apple to pay substantially less tax than other businesses for many years. The challenged decision concerned the state aid legality of two tax rulings issued by the Irish tax authorities in January 1991 and May 2007 in favour of Apple’s two Irish subsidiaries – Apple Sales International and Apple Operations Europe. The Commission initially found that Apple benefited from illegal state aid via these two Irish tax rulings which artificially reduced its tax burden for over a decade, considering that Apple was allowed to pay an effective corporate tax rate of 1% on its European profits in 2003, which declined to 0.005% in 2014.
According to the EC, this so-called “sweetheart” deal constituted state aid unlawfully put into effect by Ireland and it was thus declared incompatible with the internal market. Apple’s two Irish subsidiaries were demanded to recover EUR 13 billion to Ireland in the name of unlawful tax advantages. Both the Irish government and Apple decided to appeal the Commission’s decision, with the U.S. company arguing the order to repay taxes “defies reality and common sense”.
In its judgment, the General Court annulled the contested decision stating that the Commission failed to show “to the requisite legal standard” that Apple had received an illegal subsidy. Furthermore, the European second-highest court found that the EC did not prove, in its alternative line of reasoning, that the subject tax rulings were the result of discretion exercised by the Irish tax authorities; accordingly the Court found that Apple had not been granted with a selective advantage.
The EC has the option to appeal the decision to the European Court of Justice within the next two months. Executive Vice President Margrethe Vestager said that the EC stands fully behind the objective that all companies should pay their fair share of tax, and that she will study the judgment and reflect on possible next steps.
The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.
