Apple takes a bite out of the EU Commission....

Summary

Europe’s second highest court has rejected an EU order for Apple to pay 13 billion euros in Irish back taxes, in a blow to the EU’s attempts to crack down on perceived illegal state aid.

Assessment

The decision is a major blow for the European Commission who have placed a lot of emphasis on cracking down on what they perceive as illegal use of state aid. The case is not necessarily dead, and with other decisions including Nike still in the wings, the commission may look to continue its challenge. The court held that the Commission did not reach the necessary legal standard to show that the tax regime that Apple and the Irish Government had followed showed an advantage for the purposes of Article 107(1) of the Treaty on the Functioning of the European Union (the State Aid provisions) and so it may encourage the Commission to challenge and focus on showing exactly how the tax position gave Apple an advantage.

Equally, the decision will be a relief for the Irish Government (if not, the Irish tax payers), Apple and many multi national businesses. The Irish Government have long sort to encourage businesses, especially the tech industry, to set up shop in Ireland (and hence create jobs etc to the local economy) with an attractive tax regime and multi nationals have long adopted corporate structures that enable them to pay the majority of their tax bills in the lowest tax regime country.

What we can all assume, is that this will only intensify the call for a more coherent and consistent corporate tax policy across the EU.

What does the decision mean for you?

Unfortunately, the decision is just the beginning of a long war over the tax regime across the EU and the use of low tax countries as a means of reducing corporate tax bills. As Apple put it, the case was not about how much tax it pays but where it pays it.

With the EU, UK and US still arguing over the implementation of a digital tax….this is just one more step in a much larger debate.

Equally, any business that is looking to trade in one EU country but having its tax residency elsewhere should ensure that they take very clear tax advice as this is just the beginning of a long fight.

The facts

The decision was an appeal against a 2016 ruling by the commission that the Irish Government had given Apple an unfair tax benefit and was therefore in breach of state aid rules. Unusually, the Irish Government appealed against the decision (and the 13 million euro windfall it would receive) alongside Apple. Apple have long argued that it paid all appropriate taxes in Ireland and everywhere else and that this had nothing to do with tax compliance but simply where it should pay its taxes.