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Apple wins appeal against €13bn EU tax ruling

A general view of Apple European headquarters at Hollyhill industrial estate in Co Cork. The Facility employs 6000 people manufacturing and distributing iMac computers.  (Photo by Niall Carson/PA Images via Getty Images)
Apple's European headquarters in Cork, Ireland. (Niall Carson/PA Images via Getty Images)

Apple (APPL) on Wednesday won its appeal against a 2016 European Union ruling that found Ireland had provided €13bn (£11.7bn, $14.7bn) in illegal tax benefits to the technology giant.

In a significant blow to the landmark ruling by EU competition commissioner Margrethe Vestager, the EU’s General Court said that the European Commission was wrong to declare that two rulings by Irish tax authorities constituted illegal state aid.

In 2016, the commission found that the rulings, issued by Irish tax authorities in 1997 and 2007, had “substantially and artificially lowered the tax paid by Apple in Ireland since 1991.”

But the General Court said on Wednesday that the commission “incorrectly concluded” that Irish tax authorities had granted Apple an unfair advantage by not allocating the intellectual property rights of its products to two Irish subsidiaries.

The 2016 finding was a signal moment for Vestager, who has staked her reputation on a series of increasingly aggressive competition rulings.

The €13bn fine — the world’s largest-ever anti-trust penalty — was issued on the basis that Apple had avoided taxes by directing profits from the subsidiaries, which are responsible for all of the company’s sales outside of the Americas, to a “head office” with “no employees, no premises, no real activities.”

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But a core part of the commission’s argument turned on the allocation of intellectual property rights of Apple products to this head office, an arrangement that supposedly allowed Apple to pay significantly less tax than other firms, which is forbidden under the bloc’s state aid rules.

The General Court said that the commission had not demonstrated that this was the case, and that it should have instead shown that the income represented the value of sales “actually carried out by the Irish branches themselves.”

In a forthright statement, the court on Wednesday upbraided the commission for failing to prove to the “requisite legal standard” that Apple had gained an unfair advantage, and said that it had not proved that the tax rulings had led to a reduction in the company’s taxable profits in Ireland.

Ireland, which controversially joined Apple’s appeal, had strenuously denied the commission’s claims, arguing that the “fundamentally flawed” decision interfered with its national sovereignty by overriding its own tax laws.

The Irish finance ministry said on Wednesday that it welcomed the judgement, noting that “Ireland has always been clear that there was no special treatment provided to the two Apple companies.”

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Some €14.3bn — the fine, plus interest — has been resting in an escrow account since 2018.

While the sum would be a drop in the bucket for Apple, which has a mammoth $193bn cash pile, it told the court in September that the ruling “defies reality and commonsense.”

Apple said on Wednesday that it was pleased with the decision. “This case was not about how much tax we pay, but where we are required to pay it,” it said in a statement.

“We're proud to be the largest taxpayer in the world as we know the important role tax payments play in society.”

Though appeals to General Court rulings can only be made on points of law, it is likely that the commission will appeal to the EU’s top court.

Vestager said on Wednesday that the commission would examine the ruling and “will continue to look at aggressive tax planning measures under EU state aid rules.”

Ireland’s tax laws have been under scrutiny for years, in part because it is home to the European headquarters of several major technology firms.

The country has a low 12.5% corporate tax rate, but many giants in the country pay effective tax rates that are even lower — a fact that has helped it attract dozens of multinationals.

Following the collapse of international negotiations to introduce a global minimum corporate tax, the commission has pledged to resurrect plans to introduce an EU digital services tax, and on Wednesday announced a new taxation package for the bloc.