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Ireland's Apple Tax Ruling Appeal Gets Underway

Irelands Apple Tax Ruling Appeal Gets Underway

Irelands Apple Tax Ruling Appeal Gets UnderwayThe EU's General Court has begun hearing the Irish Government's arguments on two tax rulings granted to Apple.

In August 2016, the European Commission concluded that the two rulings provided to Apple by the Irish Government had enabled Apple to pay substantially less tax on profits recorded in Ireland than other companies subject to the same national taxation laws.

Apple submitted an appeal against the decision in December 2016. In September 2018, the Irish Government confirmed that Apple had deposited approximately €14.3bn into an escrow fund, which will be held until a decision is reached in the Government's appeal before the Court. 

The Government's appeal, which has been several years in the offing, is significant for all companies in Ireland, as the Irish Government considers that the Commission was wrong to conclude that it selectively offered Apple more favourable treatment than similarly situated companies. It will argue that it was simply applying its domestic tax laws, which it has broad autonomy to decide on.

It is about Ireland's ability to set its own tax policies and interpret its own tax laws, and for tax-planning experts to optimize their clients' positions with whichever legal tools are available, even if they result in the imposition of significantly lower effective tax burdens than headline rates. Companies with similar tax structures in place will be watching closely.

The oral hearing in Apple's case is taking place in the General Court, the EU's second-highest tribunal. Setting out its position, the Irish Government said that it "fundamentally rejects" the Commission's analysis of the rulings.

The case concerns two Apple companies operating in Ireland through branches, Apple Sales International (ASI) and Apple Operations Europe (AOE). According to the Government, the non-binding opinions given by Revenue in 1991 and 2007 did no more than apply Section 25 of the Taxes Consolidation Act 1997, which is:

"the ordinary tax law applicable to branches in Ireland of non-resident companies."

It said that the opinions,

"in accordance with the territoriality principle, taxed only the profits attributable to the Irish branch and not the non-Irish profits of the companies."


"ASI and AOE did not pay any less tax than was properly due under Section 25."

The Irish Government said that the branches were incorporated in Ireland but were not resident for tax purposes in Ireland, as they were managed and controlled in the US.

It added that the significant value creation by the companies was in the US, but the companies were not tax resident for US tax purposes as they were not incorporated in the US.

The Government stressed that:

"Ireland collected all of the tax due from ASI and AOE in respect of their branches (in Ireland)."


It maintains that:

"there was a mismatch between the Irish and US tax systems" and that "state aid is not the way to deal with gaps in the international tax system."

The Government said that:

"all important decisions in relation to ASI and AOE were made in the United States and there were no intellectual property-related activities in Ireland."

This means that profits deriving from this intellectual property were not attributable to the Irish branches.

The Government also argues that the Commission:

"contends that Ireland was required to apply a Commission version of the arm's length principle, but has not provided a coherent legal basis for this assertion or any definition of, or detail on, its version of that principle"

This is a principle which is:

"not part of EU law or Irish law in respect of branch profit attribution."

The Apple decision is one of several contentious positions the Commission has asserted with respect to tax rulings and state aid, which other governments have, too, decided to appeal. These include rulings for Fiat and Amazon in Luxembourg, and Starbucks in the Netherlands.

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Most recently the Commission launched in-depth investigations into individual "excess profit" tax rulings granted by Belgium to 39 multinational companies in September 2019.

The US Government has also spoken out against the European Commission's decisions in the matter. On the release of the Apple decision, a US Treasury spokesperson stated:

"Treasury has reviewed the European Commission's decision against Apple. We continue to believe the Commission is retroactively applying a sweeping new state aid theory that is contrary to well-established legal principles, calls into question the tax rules of individual countries, and threatens to undermine the overall business climate in Europe. Moreover, it threatens to erode America's corporate tax base."

"To be clear, we agree that tax avoidance is a serious problem around the world. We are committed to continuing to work with the Commission and other international partners, such as through the OECD, toward our shared objective of preventing the erosion of our corporate tax bases."

The tax community is watching the Apple appeal to see whether the European Commission's crusade against tax rulings will come a cropper or continue to pick up speed.

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