We know you have probably heard the news that Apple won its case against a €14.3 Billion tax order issued by the European Commission (EC). You probably said to yourself, I didn’t even know there was a case, or I need to read about that. Well, here at BAME Nation we are here to help you break it all down. Enjoy!

How did it all start?

In 2013, the same year in which York v Leicester were locked in a legal battle over where the 1485 remains of Richard III should be buried, the EC was gearing up for an investigation into Apple’s tax affairs that was going to lead to a legal battle of its own. The EC’s investigation was motivated by its belief that Ireland had given Apple a sweetheart tax deal that allowed Apple to effectively pay less than 1% in corporate taxes. For the EC at that time, Apple’s and Ireland’s corporate tax arrangements was the best example of problematic tax arrangements that led to the EU losing about €35bn a year from corporate tax avoidance.

After three years of investigation, in August 2016 the EC expectedly ruled that between 1991 to 2014, Ireland had given Apple beneficial tax arrangements that amounted to an undue tax advantage and illegal state aid. The period of 1991 to 2014 was important to the ruling because at the centre of the ruling was a 1991 Irish tax decision (changed in 2015), that enabled the two Apple subsidiaries (that now hold all of Apple’s main IP and 90% of its profits) to be incorporated but not resident in Ireland.  

For the EC, this ruling and the €14.3bn tax repayment order was a clear signal to EU countries that the EC will gladly force their sweetheart multinationals to pay back unpaid taxes.

For Ireland, the ruling caused anxiety as it undermined the tax certainty for Irish multinationals by opening them up to tax ruling to state aid scrutiny by Brussels. It also threatened Ireland’s economic model of offering a low 12.5% tax rate and EU Market access in return for foreign direct investment into Ireland. While for Apple, the ruling was in the words of Tim Cook “political crap” because it claimed the tax structure it used in Ireland applied to all companies so could not be held to amount to illegal state aid or any sort of preferential arrangement. In unison, both Ireland and Apple agreed to appeal the ruling to the EU General Court.

What did the EU’s General Court say and what is next?

Earlier this week, the EU General Court annulled the 2016 order. It held that the EC had the right to investigate national corporate tax regimes and whether they are compatible with its rules on state aid. But could not prove to the requisite legal standard that Apple received an illegal economic advantage in Ireland. Neither could the EC prove that the 1991 tax rulings were as a result of a selective action exercised by the Irish tax authorities. According to Jason Collins, partner and head of tax at Pinsent Masons, this EC’s failure on legal proof basis shows that “European courts are unwilling to call beneficial tax regimes state aid, even when designed to attract foreign investment – provided they apply the rules consistently”. This makes sense, given that a year earlier EC ruling against Starbucks was annulled on the same basis.

The EC is yet to appeal the annulment but is expected to appeal to the EU’s highest court. In the meantime, the EC has held that despite the blow it “will continue to look at aggressive tax planning measures under EU state aid rules to assess whether they result in illegal state aid”. Given the general trend of losses and the fact that the ruling is highly steeped in precedent, it is unlikely that the EC will achieve any success if it appeals. But we can be sure that the EC will not cease applying pressure and if this court route of redress continues to fail the EU will aggressively press on with its EU digital tax against big tech companies. This could be the case despite the fear of retaliation from the US and the initial pause in talks to pursue a tax redress via the OECD route.

For Ireland, the anxiety may now be over, and the annulment welcomes tax certainty for its Irish multinationals. It is a very welcoming ruling given that the country has enough concerns with trying to overcome the economic problems caused by Coronavirus. While for Apple, the ruling justifies its position all along, that it has received no special tax treatment and has always paid every percentage of the taxes it is owed.

For lawyers, the ruling is very welcome for their multinational clients but for now, the show is not over given a possible appeal route still open to the EC. In the meantime, the main role of lawyers will be advising their multinational clients on state aid rules and defending them in EC’s formal investigations into state aid as and when they happen. In addition to this, lawyers will continue to provide advice to clients on risk management strategies to address risks of investigations and antitrust risks as the temporary tax uncertainty caused by the EU’s investigation into Apple continues to linger.

Let’s add another consideration haha! For Tom, Dick and Harry, they are probably morally angry at the ruling given that they think Apple pays less tax than they pay as an individual. They probably saw EC’s ruling as their means of getting at Apple. In fact, they probably think that for big multinationals it does not matter whether they pay the legally required percentage of taxes but rather whether they pay what they see as a “morally justifiable percentage of taxes”. But that perspective is to some a can of worms and what can we say?

 

Till next time! 

Daniel Femi-Alemede

Daniel Femi-Alemede

Hello, my name is Daniel and I am an LLB graduate from the University of Exeter. Having just completed the accelerated LPC, I am currently a trainee at a City law firm. I have an assortment of interests from politics to creative writing. A fun fact about me is that I published my first article on a statewide blog at the age of 15.

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