A press release of 15 July 2020 stated that the General Court of the European Union has annulled the European Commission’s decision that tax rulings by Ireland in favour of Apple amounted to illegal state aid. The press release noted that the European Commission did not succeed in demonstrating, to the required legal standard, that an advantage had resulted under Article 107 (1) Treaty on the Functioning of the European Union (TFEU).

Under Article 107 (1) TFEU any aid granted by an EU member state that distorts competition by favouring certain undertakings or the production of certain goods is incompatible with the internal market, to the effect that it affects trade between member states.

The General Court held that the European Commission had incorrectly concluded that Ireland had granted an advantage to the Irish subsidiaries of Apple as a result of not allocating the Apple Group intellectual property licenses held by the subsidiaries, and consequently all their trading income from Apple sales outside North and South America, to the Irish branches. The Court considered that the Commission should have demonstrated that the income represented the value of the activities actually carried out by the Irish branches themselves, taking into account the activities and functions of the branches and the strategic decisions taken and implemented outside the branches.

Also the Commission did not succeed in demonstrating methodological errors in the rulings that would have led to reduced profits of the subsidiaries in Ireland, although the Court noted that the Irish rulings were incomplete and sometimes inconsistent. The Commission also did not demonstrate that the tax rulings resulted from discretion exercised by the Irish tax authorities or that they granted a selective tax advantage.

Background

In 2016 the European Commission claimed that Ireland had granted Apple illegal tax benefits worth up to EUR 13 billion in the years between 2003 and 2014. This claim resulted from the analysis of tax rulings issued by Ireland in 1991 and 2007 establishing transfer pricing methods for two subsidiaries of Apple in Ireland, permitting the Irish subsidiaries to derive worldwide profits.

The European Commission considered that the method for allocation of profits was artificial and there was no factual or economic justification. As a result of the arrangement with Ireland, Apple was able to reduce its effective corporate income tax rate in the years from 2003 to 2014. The European Commission considered that this was selective tax treatment and was illegal under EU State aid rules because it gave Apple a significant advantage over its competitors.

In November 2016 Ireland and Apple began Court action for annulment of the European Commission’s ruling and at an oral hearing in September 2019 Ireland rejected the analysis of the European Commission, stating that it did not give favourable tax treatment to Apple; no state aid was provided; the full amount of tax was paid; and Ireland does not do deals with taxpayers.