The Commission suffered a legal setback on Wednesday 15th July when the General Court of the European Union annulled the 2016 decision against Apple over its Irish tax affairs.
In its ruling, the General Court held that the Commission did not succeed “in showing to the requisite legal standard that there was an advantage for the purposes of Article 107(1) TFEU”. The crux of the case centered around two earlier rulings by Irish authorities, which endorsed the methods used by Apple’s Irish operations to determine their chargeable profits. The Commission had found that these rulings, which secured Apples’ non-tax resident status, constituted unlawful State Aid. The Irish Government would have received roughly 13 billion euros in the event the ruling was upheld, but it had in fact intervened on the side of Apple, arguing no tax was due.
In its reasoning, judges found that the Commission had failed to prove that the rulings constituted a “selective economic advantage and, by extension, State aid”. The fact that Irish authorities had not allocated Apple IP licenses over sales outside North and South America, and as a result trading profit from those sales, to the Irish branches was found to be the incorrect test. Instead, the Court stated that the Commission should have shown that activities carried out by the Irish branches had resulted in the asserted income, taking account of functions undertaken by them and strategic decisions taken by the Group. Assertions that the Irish authorities had either made methodological errors or applied discretion to create an advantage were also held not to have been sufficiently proven.
Importantly for DG-COMP the General Court did endorse the Commission’s calculations on the amount of tax which would have been ordinarily due under the applicable Irish tax law, including its use of the OECD arm’s length principle.
The ruling follows two high profile similar cases against Starbucks and Fiat last September, where the court ruled the Commission had failed to make the legal case with the former, but affirmed the latter. Since retaking office, Vestager has made public calls for further actions towards a minimum tax threshold across the EU. As shown in the Commission’s initial response to the ruling, which included exploring Article 116 of TFEU to tackle this acitivity as distortive taxation, such calls are likely to get louder going forward.