Apple loses €13bn tax battle in EU court ruling

The European Court of Justice (ECJ) has ruled against Apple in a high-profile €13 billion (£11 billion) tax case, overturning a previous lower court victory for the tech giant. The ruling, delivered on Tuesday, September 10, 2024, marks a significant win for the European Commission in its long-standing efforts to clamp down on favourable tax deals for multinational corporations.

The case, which has been ongoing since 2016, centred on whether Apple had received illegal tax benefits from Ireland. The European Commission, led by competition chief Margrethe Vestager, had initially ordered Apple to pay €13 billion in back taxes, arguing that the company had benefited from unlawful state aid through tax rulings issued by Ireland in 1991 and 2007.

These tax rulings allowed Apple Sales International (ASI) and Apple Operations Europe (AOE), two Irish-incorporated but non-resident companies, to attribute the bulk of their taxable profits to “stateless” head offices that existed only on paper. This arrangement resulted in Apple paying an effective corporate tax rate of just 0.005% in 2014, according to the Commission’s findings.

The Legal Battle

In 2020, the General Court, the EU’s second-highest court, had annulled the Commission’s 2016 decision. The lower court ruled that the Commission had failed to show that Apple had received an illegal economic advantage in Ireland over tax. However, the Commission, undeterred, appealed this decision to the ECJ.

The ECJ’s ruling overturns the 2020 decision by the General Court. The higher court found that the General Court had erred in its assessment of the Commission’s arguments and the application of Irish tax law. Specifically, the ECJ criticized the General Court’s evaluation of the Commission’s primary line of reasoning and its upholding of complaints raised by Ireland and Apple regarding the Commission’s factual assessments of the activities of ASI and AOE’s Irish branches.

The Court of Justice confirmed the Commission’s approach, which argued that under Irish law, the activities of ASI and AOE’s branches in Ireland should be compared to other entities of those companies, particularly their head offices outside Ireland, rather than to other Apple Group companies.

Implications of the Ruling

This decision is expected to have far-reaching implications for multinational companies operating in Europe. It bolsters the European Commission’s position in its ongoing battle against what it perceives as unfair tax practices and “sweetheart deals” between large corporations and EU member states.

“The decision by the EU’s highest court in relation to Apple is surprising as Apple will already have paid tax in the US,” said Simon Crookston, Head of Corporate Tax at Crowe UK.

“However, it does show that The Commission is seeking to continually target the tax treatment of multi-national corporations and particularly those that have focussed their operations in perceived EU tax havens or where a favourable tax ruling may potentially be obtained, such as in Ireland, Luxembourg or the Netherlands. Other multi-nationals will be looking at this decision closely and considering how this may impact on their organisational structures.”

Reactions from Key Players

Margrethe Vestager, the EU competition chief, hailed the ruling as a “big win for European citizens and for tax justice.” She emphasized that the €13 billion should now be released to the Irish government. Vestager, who is due to step down this year, has been seen as a tough enforcer willing to take on powerful multinationals such as Fiat, Amazon, and Starbucks over their tax bills.

In a press conference following the ruling, Vestager elaborated on the Commission’s findings from 2016: “These tax rulings attributed the bulk of the taxable profits to two Irish subsidiaries of Apple to what was a stateless head office. These head offices existed only on paper – no tables, no chairs, no activities. The profits were thus not taxed anywhere.”

She rejected suggestions that Brussels’ tougher stance might push out big tech companies, asserting, “Europe is a formidable place to do business.”

Apple, however, expressed disappointment with the decision. The company maintained that the case was about which government they should pay taxes to, not how much tax they pay.

In a statement, Apple said: “This case has never been about how much tax we pay but which government we are required to pay it to. We always pay all the taxes we owe wherever we operate and there has never been a special deal. Apple is proud to be an engine of growth and innovation across Europe and around the world, and to consistently be one of the largest taxpayers in the world.”

The company further argued that the European Commission was trying to retroactively change the rules and ignore that, as required by international tax law, their income was already subject to taxes in the US. Apple pointed out that the General Court had previously reviewed the facts and categorically annulled the case.

The Irish government, which had supported Apple in the case, stated that it would respect the court’s findings. However, it emphasized that the ruling was of “historical relevance only,” as Ireland has since introduced changes regarding corporate residence rules and the “attribution of profits to branches of non-resident companies operating in the state.”

Broader Context and Future Implications

This ruling comes at a time of increased scrutiny of tech giants’ tax practices globally. It is part of a broader push by the European Union to ensure that multinational corporations pay their fair share of taxes in the countries where they operate.

The case brings to a close years of litigation that began in 2016 when the Commission ordered Apple to pay billions of euros for gross underpayment of tax on profits between 2003 and 2014. Apple, which has had its European headquarters in Cork since 1980, had rejected the accusations, with CEO Tim Cook calling the claims “political crap” at the time.

The ruling is expected to embolden the European Commission in its efforts to combat what it sees as unfair tax practices. It may also prompt other EU member states to reassess their tax arrangements with large multinational corporations.

Moreover, this decision could influence ongoing discussions about global tax reform, including proposals for a global minimum corporate tax rate and changes to how digital companies are taxed based on where they generate revenue rather than where they are headquartered.

 “The court has concluded that Apple were given undue tax benefits that were illegal under EU State Aid rules. Whilst the sum now payable is eye-watering, it is actually the wider consequences of the decision that could well be a landmark one in attempts to address perceived tax avoidance by multinational corporations and is likely to send shockwaves through the taxes systems,” says Rob Marchant, National Head of Tax at Crowe UK.