Apple is doing a victory dance today. The second-highest European Union court has overturned a decision that the Cupertino-based tech giant would have to pay $21 billion (€13 billion) in back taxes to Ireland.
It’s a landmark win, and a huge blow to the European Commission’s attempts to crack down on multinational companies that cut unlawful tax deals in Europe. In a press release, the General Court of the European Union wrote it sided with Apple because “the Commission did not succeed in showing to the requisite legal standard” that the company’s sweetheart tax deal with Ireland gave it an unfair leg up.
This particular case has been over a decade in the making. The background is that Apple created two European subsidiaries, Apple Sales International (ASI) and Apple Operations Europe (AOE), which were headquartered in Ireland. Between 2003 and 2014, the Commission said Apple’s corporate tax rate fell from 1% to just 0.005% and that these offices couldn’t have generated the profits that were claimed. After a two-year investigation, the European Commission ruled in 2016 that the Irish government had given Apple illegal state aid.
According to the Independent, Apple CEO Tim Cook characterised the case as “total political crap.” Cook vehemently denied in a letter that Apple had cut any deals with Ireland, saying the claim had “no basis in fact or in law.” In 2017, the company released a statement saying the “debate of Apple’s taxes is not about how much we owe but where we owe it.” By December that year, Apple begrudgingly agreed to repay what it owed, and in 2018, repaid the full amount in an escrow fund ahead of the appeal. As of last year, Apple said the tax bill “defie[d] reality and common sense,” indicating that ultimately it would really rather not have to repay anything at all.
In a statement to Bloomberg, Apple reiterated its 2017 stance, saying it “was not about how much tax we pay, but where we are required to pay it.” It added that Apple had paid over $US100 ($143) billion in corporate taxes worldwide, and “tens of billions more in other taxes.”
Don’t feel too bad for Ireland, though. The country has sided with Apple from the beginning, likely because it digs being a tax haven. In a statement, the Irish government said it was pleased with the ruling. “Ireland has always been clear that there was no special treatment provided to the two Apple companies — ASI and AOE,” the statement reads. “The correct amount of Irish tax was charged in line with normal Irish taxation rules.”
Obviously, the European Commission disagrees. European Commission Executive Vice-President Margrethe Vestager, who also spearheaded the 2016 decision, said in a statement, “The Commission stands fully behind the objective that all companies should pay their fair share of tax. If Member States give certain multinational companies tax advantages not available to their rivals, this harms fair competition in the EU.”
Going forward, Vestager said the EU will be considering its next steps. It has 14 days to appeal the decision to the EU’s highest court, the Court Justice of the European Union. So while Apple is likely celebrating its win today, it could take a few more years before there is an absolute final decision on the matter. Until then, that $US15 ($21) billion will stay in the escrow fund Apple set up.
This whole debacle has wide-reaching implications. Vestager also has three cases against Google totaling roughly $US9.4 ($13) billion, while Amazon is also appealing a 2017 ruling saying it owes Luxembourg roughly $US300 ($429) million in back taxes. The outcome of those cases could impact how giant tech companies (and non-tech multinationals) are taxed internationally. That said, Vestager also lost a case last year in which Starbucks was alleged to owe the Netherlands $US33 ($47) million in back taxes, stating that the Commission had failed to prove the coffee company had an unfair advantage. Based on the Starbucks ruling and today’s Apple ruling, it would appear that the EU courts don’t necessarily disagree with Vestager’s crusade against multinational tax dodgers — but it does care about the Commission doing its homework to prove its case.