After four years of wrangling with EU authorities, Apple and the Irish Government have won their appeal against a previous European Commission decision concerning how Apple is taxed in Ireland. On 15 July 2020, the General Court of the European Union pronounced that two tax rulings granted to Apple by the Irish Government in 1991 and 2007 were lawful.
The stakes were high for Apple, with the decision worth some €13bn ($14.8bn) in back taxes, as well as interest of €1.2bn. For Ireland, the ruling in its favour vindicating its approach to tax, with the General Court agreeing with the country, which has said from the outset that the rulings for Apple were not a "sweetheart deal".
The Apple Tax Rulings
The losing case against Apple and Ireland centred on the notion that the Irish Government's two tax rulings had granted Apple a selective tax advantage amounting to illegal state aid under Article 107 of the Treaty on the Functioning of the EU (TFEU).
According to the EU, Apple set up its sales operations in Europe so that customers were contractually buying products from Apple Sales International (ASI) in Ireland, rather than from shops that physically sold the products to EU customers. Apple's branches in Ireland would then send funds to the US each year to finance research and development there.
The Irish Government's two tax rulings concerned the internal allocation of profits within Apple Sales International (ASI), which the EU claimed endorsed a split of the profits for tax purposes in Ireland.
In stating its case, the European Commission claimed that the tax rulings issued by Ireland endorsed an artificial internal allocation of profits that had "no factual or economic justification" thus giving Apple a selective tax advantage.
To prove that such a "selective tax advantage" existed, it fell to the European Commission to prove that Irish authorities had granted Apple more attractive tax treatment than available under domestic law to other companies and distorted competition within the EU.
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General Court Ruling
In its rulings for Ireland (Case T-778/16) and Apple's Irish branches (Case T-892/16), the General Court of the European Union agreed to annul the Commission's decision.
It said the Commission did not succeed in showing that there was an advantage for the purposes of Article 107(1) TFEU. According to the General Court, the Commission was wrong to declare that the Irish branches had been granted a selective economic advantage, and, by extension, State aid.
The General Court said, for instance, that the Commission would have had to show that the income (which the Commission said should have been allocated to the Irish branches) had been generated by activities actually carried out by the Irish branches themselves.
Further, the Court said the Commission failed to demonstrate that the Irish tax ruling was flawed in how it was drafted. The Court stated:
"Although the General Court regrets the incomplete and occasionally inconsistent nature of the contested tax rulings, the defects identified by the Commission are not, in themselves, sufficient to prove the existence of an advantage for the purposes of Article 107(1) TFEU."
Finally, the Court said the Commission had failed to prove that the tax rulings were the result of discretion exercised by the Irish tax authorities to give the Irish branches a selective advantage.
Welcoming the ruling from the General Court, the Irish Government stated:
"Ireland has always been clear that there was no special treatment provided to the two Apple companies... the correct amount of Irish tax was charged in line with normal Irish taxation rules. Ireland appealed the Commission decision on the basis that Ireland granted no State aid and the decision today from the Court supports that view."