European commission to appeal against €14.3bn Apple tax ruling

The European Commission is appealing the Apple tax court ruling in favour of Ireland that found the tech giant did not need to pay €14.3 billion to the state to the European Court of Justice.

Commenting on the ruling Minister for Finance Paschal Donohoe said that the decisions by the European Commission was expected but that the State would continue to ensure it interests were protected.

“The current phase of this issue has now taken four years to get to this point. I would say it will take a number of further years before this matter is further determined,” he said.

"The commission... respectfully considers that in its judgment the General Court has made a number of errors of law," the European Commission's Margrethe Vestager said in a statement.

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“The General Court has repeatedly confirmed the principle that, while Member States have competence in determining their taxation laws taxation, they must do so in respect of EU law, including State aid rules,” she added.

“If Member States give certain multinational companies tax advantages not available to their rivals, this harms fair competition in the European Union in breach of State aid rules.”

Ruling

In July the EU’s General Court ruled that the commission “did not succeed in showing the requisite legal standard” that Apple’s arrangements in Ireland amounted to illegal benefits from the state. This overturned a prior order that the company had to pay €14.3 billion to the Republic.

The ruling in favour of Ireland and Apple was seen as a blow to Ms Vestager’s efforts to rein in tech behemoths and clamp down on arrangements seen as sweetheart tax deals.

The Irish government has always maintained that no state aid was given to Apple.

“Ireland has not yet been served with formal notice of the appeal,” Minister for Finance Paschal Donohoe said in a statement.

“When it is received, the Government will need to take some time to consider, in detail, the legal grounds set out in the appeal and to consult with the Government’s legal advisors, in responding to this appeal.”

A spokesman for Apple said that it had always paid its tax obligations.

Determination

“The General Court categorically annulled the Commission’s case in July and the facts have not changed since then. This case has never been about how much tax we pay, rather where we are required to pay it,” the spokesman said.

“We will review the Commission’s appeal when we receive it, however it will not alter the factual conclusions of the General Court, which prove that we have always abided by the law in Ireland, as we do everywhere we operate.”

The appeal process may take two years to complete. Until there is a final determination, the funds that amount to €14.3 billion when interest is included will remain in an escrow account as they have since 2018, mostly in the form of bonds.

The commission was keen to appeal as it believes that the July ruling sets a high bar for what constitutes the “requisite legal standard”, which could have implications for further cases taken by the commission.

The commission argues that Ireland allowed Apple to allocate almost all of its European profits to “head offices” that were not based in any country, and were untaxed. Its appeal is based on an argument that the General Court disregarded the arm’s length principle and the separate entity approach when it comes to determining tax liabilities.

Implications

Its lawyers will argue that the General Court should only have assessed how Apple allocated its European profits internally, and that too little profit was allocated to taxable branches in Ireland, therefore giving Apple an economic advantage in the state.

Peter Vale, Tax Partner at Grant Thornton Ireland described the commission’s decision as a “surprise” as the previous ruling had been a “comprehensive defeat” of its case.

“From Ireland’s perspective, the appeal by the EU Commission keeps the matter in the spotlight for a few more years, which could have adverse reputational implications for Ireland, regardless of the ultimate outcome,” Mr Vale said.

“The decision by the Commission to appeal creates more uncertainty for investors looking at Ireland or the EU in respect of the EU tax landscape,” he added. “Ultimately, I believe that the ECJ will rule in favour of both Ireland and Apple.”