EU court decision settles €13bn question: Apple’s money was never ours to tax

Cliff Taylor: Cupertino, not Cork, clearly called the shots in tech giant’s Irish business

The Apple logo on display at a company store in Brussels. The EU general court ruling is a big blow for the European Commission. Photograph: Emmanuel Dunand/AFP

The Apple logo on display at a company store in Brussels. The EU general court ruling is a big blow for the European Commission. Photograph: Emmanuel Dunand/AFP

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Sometimes legal judgments do fall into line with common sense.When the European Commission announced in 2016 that Apple owed the Republic €13 billion in back tax, the general reaction here was, “ that’s mad, Ted”, followed by a string of media listings on what this amount of money could buy us.

But the EU’s general court has decided in the most unequivocal terms that the Commission got it wrong. And while the details are complex – this is tax, after all – the essence of it is simple. The court decided that this was never Ireland’s money to tax in the first place.

The commission had argued that the profits Apple earned all over the EU and beyond, which moved through Irish-registered companies, should all have been taxed here. And that by not doing so, Ireland had granted an illegal advantage to Apple – in effect, had given it state aid.

But think about it for a minute. Why should the profits made from the sale of an iPhone in Germany – designed in California and made in China – be payable in Ireland? The commission ruled that because this profit was booked in an Irish-registered company (though not one that was tax-resident here), the tax should have been paid here – though it did say that some other EU countries or the US might stake a claim to some of it.

The court found the argument that the tax should have been paid in Ireland was plain wrong. It said the commission was incorrect to argue that all Apple profits made outside North and South America were taxable in Ireland, even though the money had passed through Irish companies.

The decision to throw out both key planks of the commission’s argument was a big win for the State

The commission had simply not shown that the Irish branches had undertaken all the activities and functions, and exercised the strategic control which would have justified this. Clearly they didn’t – the shots were called in Cupertino. This was a case of “overreach” by the commission, according to Feargal O’Rourke, managing partner at PWC. “It was good to see that the court ruled on the law and was not swayed by political considerations.”

‘Comprehensive defeat’

This is a big blow for the European Commission. The court threw out not only its argument that Ireland offered illegal state aid to Apple, but also a subsidiary argument that the tax rulings from the Irish Revenue Commissioners made methodological errors. It was, according to Peter Vale, head of international tax at Grant Thornton, “a comprehensive defeat for the Commission”.

Margrethe Vestager, who had been strident in her promotion of the decision, said the commission would consider the ruling, so it is not yet a given that it will appeal. In Dublin, the Government had hoped the court would find at least partially in its favour. But the decision to throw out both of the key planks of the commission’s argument was a big win for the State’s legal team and that of Apple.

The court’s decision also takes some heat out of this politically. There had been controversy over the decision to appeal in the first place – given the boost the money would have given to the exchequer and the growing controversy over the tax practices of the major multinationals. Now the EU’s second-highest court has found the money was never really owed here in the first place. In fact, changes in US tax law mean that the US treasury will be the beneficiary.

The Government will breathe a big sigh of relief over the latest judgment, but knows that bigger battles lie ahead

Apple – and other companies – have used complex structures to pay little tax for many years on money earned outside the US. Changes in international – and US – tax law mean that this game has now changed. Here, the controversial double Irish tax structure at the heart of the Apple case will be no more from next December. But the resurfacing of the Apple case now puts all this – and the Republic’s role – back in the spotlight.

The court has decided that nothing illegal happened in the Apple case, but that does not mean that the tax avoidance tactics which multinationals have applied over the years were acceptable either. The details of the Apple case and how it used the double Irish tax structure are a classic and not very pretty tale of tax avoidance. Ireland will argue that this was historical and practices here have since changed.

Dark hints

The Apple decision will add to the debate on how tax avoidance is tackled and will keep Ireland in the spotlight, with dark hints from Brussels in recent days of new measures to examine how countries like Ireland do business.

There have been changes in international and Irish tax law in recent years, in response to reform negotiations at the OECD. However, the next – and crucial – round of these talks is in trouble. The Government here will breathe a big sigh of relief over the latest judgment, but it will know that bigger battles lie ahead.

And what of the €13 billion? Well, to use another Father Ted phrase, that will remain “resting in our (escrow) account” for now until it is clear whether the European Commission will appeal the decision. Either way, the likelihood that the Irish exchequer will ever benefit from it now looks very small.

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