The General Court of the European Court of Justice has annulled an EU decision that involved Apple’s subsidiaries in Ireland. Four years ago, the European Commission said that Ireland had failed to collect €13 billion in taxes from Apple — roughly $15 billion.
According to the press statement, “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 [Treaty of the Functioning of the European Union].”
Back in 2017, the Commission said Apple received illegal state aid and should have paid more taxes. But the General Court, Europe’s first instance court, says that this argument doesn’t represent a legal basis.
“According to the General Court, the Commission was wrong to declare that [Apple Sales International] and [Apple Operations Europe] had been granted a selective economic advantage and, by extension, State aid,” the court wrote in a statement.
Today’s decision represents a blow to the European Commission’s strategy to track down multinational corporations that have been optimizing their tax structure in order to lower their effective tax rate across Europe — a strategy that was mostly incarnated by then Competition Commissioner Margrethe Vestager.
Between 2003 and 2014, Apple operated with two main subsidiaries in Europe — Apple Sales International and Apple Operations Europe. Back then, the Commission said those subsidiaries attributed the vast majority of their profit to a head office that only exists on paper. “This selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014,” Vestager wrote in 2016.
Apple’s arguments have always been quite straightforward. According to the company, Ireland never cut a deal with Apple. “The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals,” Apple CEO Tim Cook said in 2016.
While Apple has continuously maintained that it complies with tax laws in Europe, it took advantage of favorable tax laws in Ireland and the so-called Double Irish tax structure.
As tax optimization schemes come and go, Apple changed its European structure in 2014. Apple Sales International and Apple Operations International moved its cash stockpile to the tiny island of Jersey.
In 2018, Apple started allocating money in case it had to pay back €13 billion to Ireland. Everything is currently sitting in an escrow account. The defeated side can still appeal the decision on points of law, so the money might remain in the escrow account a little longer.
Update: The Commission sent the following statement to the Financial Times:
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