The EU will face Apple and Ireland again in a high-stakes courtroom battle that could have lasting effects on the regulation of multinationals in the bloc.
European competition regulators today appealed to the European Court of Justice in Luxembourg to overturn a lower court ruling and order Apple to pay back €14.3 billion in taxes to Ireland, plus interest.
The case is the most high-profile in EU watchdog chief Margret Vestager’s campaign against so-called “sweetheart” deals that offer multinational companies favorable tax conditions in EU countries.
According to Paul-John Lowenthal, a lawyer for the commission, the outcome of the case “will determine whether member states can continue to give multinationals significant tax breaks in exchange for jobs and investment.” reports Reuters.
A seven-year dispute
The case stems from a 2016 investigation by the European Commission, which found that two tax rulings issued to Apple by the Irish Revenue Service in 1991 and 2007 had “substantially and artificially lowered the tax Apple has paid in Ireland since 1991”. Apple’s effective tax rate in Ireland in 2014 was 0.005%.
The Commission believed that such arrangements constituted illegal state aid, giving Apple an unfair advantage over its competitors. In 2016, the Commission found the tech giant guilty of failing to pay taxes totaling €13.1 billion between 2003 and 2014 and ordered it to pay the amount to Ireland, along with €1.2 billion in interest. The money was then recovered from Apple and placed in an escrow fund.
Apple and Ireland appealed the decision and the case was heard at the EU General Court over two days in 2019.
They won the case and the court overturned the verdict. The EU’s second highest court said the Commission had failed to “demonstrate to the necessary legal standard” that the tech giant had obtained an illegal economic advantage in Ireland over its taxes. However, the money remained in a reserve account in case the EU decided to appeal, which they did.
The commission did not accept the decision and announced in September 2020 that it would file an appeal, which was heard today.
Wider implications
At the heart of the debate is exactly where value is created and where it should be taxed. Apple maintains that key decisions about its products are made at its Silicon Valley headquarters and that profits should be taxed there. Apple’s lawyer, Daniel Baird, told the court today that “the commission simply got the facts wrong about what was going on in Ireland,” Bloomberg reported. reports.
The commission, however, believes that the activities of two Apple divisions Apple Sales International and Apple Operations Europe must be taxed in Ireland because most of the profits from these units are generated outside the US.
If the commission wins, an amount roughly equal to Ireland’s entire annual health budget will be paid to the Irish State. Although his path so far isn’t looking too peachy.
The commission has failed to convince EU courts of the merits of its policy in a series of high-profile court cases in recent years, including a €30m lawsuit against Starbucks, a €250m claim from Amazon and a €30bn tax refund chase. From Fiat Chrysler.
The danger for Vestager and the wider Commission is that a defeat at Europe’s highest court could encourage member states to use special tax arrangements to encourage foreign direct investment.
CJEU Advocate General Giovanni Pietruzzella will deliver a non-binding opinion on November 9, followed by the Court’s decision.