After nearly four years, there is a first court decision in the conflict over Apple’s huge tax claim in Ireland. The dispute could, however, continue at first instance. Because it’s about 13 billion euros – and more than just money.
In the dispute over a record tax payment of 13 billion euros for Apple in Ireland, the EU Commission suffered a defeat in court. The EU court in Luxembourg annulled the Commission’s 2016 request. The Commission was unable to show that Apple’s Irish and Irish tax arrangements in 1991 and 2007 constituted unjustified state aid, the judges said on Wednesday.
However, the decision is most likely not the end of the politically charged conflict. It is considered very likely that the dispute will continue at the European Court of Justice (ECJ). The Commission has two months to appeal.
EU Competition Commissioner Margrethe Vestager asked Apple to repay the billion in Ireland in August 2016 because the country had granted the company unlawful special treatment in terms of tax conditions. Ireland and Apple resisted, and the key issue in the process was what proportion of the money accumulated in Ireland should have been taxed in the country.
Apple does not want to be considered a “tax evasion”
The iPhone group had stressed before the EU court that the earnings of the two Irish subsidiaries, which are at issue, were taxable primarily in the United States. That’s why Apple saw double checkout. The Commission also failed to convince the court that Apple was getting special rates in Ireland that were not available to other companies.
The argument is not just about a lot of money. For the Commission, it is a massive setback in its long-standing disputes with individual member countries such as Luxembourg over tax conditions for companies. For Commissioner Vestager, who is often celebrated in Europe, the sensational case was a highlight of her career to date. The case also fueled the US-Europe dispute over the taxation of American companies. And for Apple, it’s also about the reputation: The iPhone manufacturer does not want to be a tax refugee and trickster.
Apple argued before the EU court that the Irish subsidiary Apple Sales International (ASI) was only responsible for the sales of the group’s devices outside of North and South America – while the actual values were created primarily in the USA. “The iPhone, iPad, App Store, and all other Apple products and services were designed and developed elsewhere.” Ireland was therefore right to tax only the portion of the profits posted by subsidiaries that resulted from activities in the country.
US companies are bunkering money abroad
American companies were able to store foreign profits outside their home country according to previous US regulations. 35 percent tax was payable on a transfer to the United States. Many companies therefore kept the money abroad. With the tax reform that has been in effect since 2018, a payment was made on the foreign reserves at significantly lower rates – regardless of whether they are brought to the USA or not. Apple pays nearly $ 38 billion in taxes to the US Treasury on the $ 252 billion overseas cash pool. According to the company, of this, $ 21 billion of taxes were attributable solely to the profits that the EU Commission is concerned with.
The Commission did not deny that much of Apple’s intellectual property originated in the United States. However, the Irish tax authority did not carry out the necessary analyzes of the entire business of the Apple subsidiaries in order to be able to reasonably decide which part of the profits should be taxed where. The judges criticized that Apple’s tax agreements at the time were only insufficiently documented, but the Commission’s arguments were not sufficient.