Apple Loses Legal Battle Over €13 Billion Tax Bill in the EU

Département de recherche, d’études stratégiques et de relations internationales 11-09-2024

The European Commission gains momentum in its efforts to crack down on favorable tax arrangements for multinationals.

Apple has lost a significant legal case concerning a €13 billion (£11 billion) tax dispute with the European Union. The ruling is a victory for the European Commission as it seeks to address preferential tax agreements, commonly referred to as “sweetheart” deals, that benefit large corporations.

The European Court of Justice (ECJ) ruling, which had been highly anticipated, concludes a prolonged legal conflict over the European Commission’s 2016 demand that Apple repay €13 billion in what was deemed “illegal” tax benefits. The Commission had argued that the favorable tax treatment gave Apple an unfair advantage.

In its decision, the ECJ overturned a lower court ruling that had previously been in Apple’s favor. It upheld the Commission’s stance that Ireland had granted Apple illegal state aid through tax arrangements affecting profits generated outside of the United States, which now must be recovered by Ireland.

In 2020, a lower court had annulled the Commission’s decision, stating that it had not sufficiently demonstrated that Apple’s subsidiaries had received a selective advantage. However, the ECJ has now set aside that ruling, confirming that Apple did indeed benefit from unlawful tax breaks in Ireland.

This outcome marks a win for Margrethe Vestager, the European Union’s competition chief, who, in 2016, concluded that Apple had unfairly benefited from these tax arrangements. Vestager, who is stepping down later this year, is known for taking a firm stance against large multinationals such as Fiat, Amazon, and Starbucks. However, not all of her cases have withstood judicial scrutiny, with some, including a 2022 decision involving Fiat, being overturned.

The legal battle dates back to 2016 when the European Commission ordered Apple to pay back billions in taxes that it had allegedly avoided between 2003 and 2014. Apple’s European headquarters, located in Cork since 1980, had benefited from tax rulings by Irish authorities that allowed the company to pay an effective tax rate as low as 0.005% in 2014.

Apple had consistently rejected the claims, with CEO Tim Cook dismissing them as “political nonsense.” The company successfully challenged the Commission’s decision in 2020 when the general court ruled that Brussels had failed to prove that Apple had received an illegal economic advantage.

However, the Commission appealed, and Giovanni Pitruzzella, advocate general to the ECJ, advised that the general court’s decision be overturned. Pitruzzella stated that errors in law were made and called for a reassessment of the case. While his recommendation was not legally binding, it often influences the court’s final decisions.

Following the ruling, Apple reiterated that the case was not about the amount of tax it owed, but which government should collect it. The company emphasized that it always pays its taxes where required and has never received special treatment. Apple expressed disappointment with the decision, noting that the general court had previously annulled the case.

In a separate decision, the ECJ upheld a €2.4 billion fine against Google in an antitrust case involving the company’s preferential treatment of its own online shopping services. Despite Google’s adjustments made in 2017 to comply with the European Commission’s ruling, the court upheld the penalty. Google stated its dissatisfaction with the decision but highlighted that it had complied with the changes required.