The end of the Apple state aid saga; Apple must pay €13 billion due to unpaid tax benefits
Recently the Court of Justice of the European Union (the “CJEU”) published its final judgment in the case C-465/20 P Commission v Ireland and Others concerning two tax rulings issued by Ireland in favour of Apple. The CJEU overturned the General Court’s judgment and upheld the Commission’s decision, finding that Ireland had granted Apple unlawful State aid through the tax rulings. The amounts that now must be repaid, €13 billion, are the largest tax recovery of all times, in addition Apple has to pay interest.
Background
Ireland issued two tax rulings, in 1991 and 2007, in favour of two Irish-based subsidiaries of the Apple Group. The subsidiaries were incorporated in Ireland but not tax resident in Ireland. The subsidiaries only had trading branches in Ireland while their head offices were outside Ireland. The tax rulings approved the Apple Group’s methods of determining the Irish branches’ chargeable profits in Ireland, which significantly reduced the subsidiaries’ taxes. In essence, the tax rulings resulted in profits from IP licenses being allocated for tax purposes to the subsidiaries’ head-offices and not to the Irish branches.
In 2016 the Commission found that the tax advantages constituted unlawful State aid which had resulted in up to €13 billion tax benefits for the Apple Group, according to the Commission’s estimate. Therefore, the Commission ordered Ireland to recover the aid from Apple. Both Apple and Ireland appealed the decision to the General Court.
The decision of the Commission was annulled by the General Court in 2020. The General Court argued that the Commission had not sufficiently established that the Irish-based subsidiaries enjoyed a selective advantage, which is one of the criteria for the presence of State aid.
The judgment of the CJEU
The CJEU overturned the judgment of the General Court, stating that the General Court had erred in its ruling to annul the decision of the Commission. Instead of referring it back to the General Court for reconsideration, the CJEU decided to issue a final judgment in the matter and ruled in favour of the Commission. The judgment is the last step in the Apple State aid case and concludes that the tax advantages granted by Ireland did constitute unlawful State aid.
Concluding remarks
The judgment follows a series of judgments on tax rulings. In recent years, the EU Courts have annulled Commission State aid decisions regarding tax rulings given to, inter alia, Amazon, Engie and Fiat Chrysler in Luxembourg and Starbucks in the Netherlands. The Apple judgment is an important win for the Commission and contributes to the understanding of State aid and tax rulings. A key takeaway from all these judgments is that while Member States have exclusive competence on direct taxation issues, national tax measures such as tax rulings must comply with State aid rules and not confer undue economic advantages to companies. Ongoing State aid investigations may also be affected by the judgment, e.g. the Commission’s examination of tax advantages to Nike and Inter IKEA in the Netherlands and to Huhtamäki in Luxembourg.