On September 10th, 2024, Apple was fined €13bn euros in back taxes (taxes that were not fully paid or were partially paid in the year that they were due), ordered by the Court of Justice of the European Union (CJEU) to be paid to Ireland. This long-awaited decision could only be described as a years-long battle, spearheaded by the European Commission to eradicate “sweetheart” tax deals (an agreement that consists of one party presenting another with an offer that is so attractive that it is difficult to turn down) for multinationals. In order to understand the implications and significance of this decision, the origins of the dispute in 2016 must be analysed with reference to 2 legal aspects. First, the meaning of “tax rulings” and how they are distorted by multinationals to benefit from less taxes. Second, the involvement of states as actors helps multinationals evade their obligations.
Tax Rulings and Dishonest Interpretations of State Aid:
The term “tax ruling” is common in the practice of tax law and usually refers to a preliminary form of advising companies regarding taxes they need to pay. Such rulings can be considered as explanations of a particular issue in the context of the law, used to support the taxpayer in the proper interpretation and application of necessary provisions. It is not considered an illegal practice, however, when complicated regulations are used and interpreted to the advantage of certain companies, a situation arises where some parties benefit more than others. In the end, companies that pay their taxes legally have the most to lose from this practice. Such benefits were granted to subsidiaries of Starbucks and Fiat among others, in a 2015 case in which both were ordered by the European Commission to make supplementary payments of 20 to 30 million Euros each to make up for the amount they should have paid in tax.
Some regulations that have been used for malicious interpretation purposes deal with the concept of State aid. Multinationals involved in such controversies are not the only parties at fault as many States have been granting these companies tax benefits under the pretext of aid. This aid is defined under Article 107 of the TFEU, placing emphasis on the fact that in order for the monetary assistance to qualify as State aid it must be granted without discrimination and must facilitate development of certain economic areas. The EU Commissioner Vestager, clearly outlined that Ireland’s practice is illegal under EU State aid rules as benefits cannot just be given to select companies. These practices are relevant to understanding the beginnings and maintained efforts to hold Apple responsible until the present.
The EU’s 2016 Case Against Apple in Ireland:
Following an investigation carried out by the European Commission at the beginning of 2014, it was discovered that Ireland had granted tax benefits to Apple under the pretext of State aid, enabling it to pay substantially less tax compared to other businesses. This was carried out utilising two tax rulings issued for two Apple subsidiaries which did not reflect the economic reality (rulings reflected Apple had a registered office in Ireland but the tax domicile was actually in Bermuda). This selective treatment allowed Apple to pay a lower corporate tax rate between 2003 to 2014, with the rate being 0.005% in 2014. The rationale for Ireland granting Apple preferential treatment may be traced back to the 1990s with the creation of the EU Single Market which allowed companies to move freely across the EU whilst only paying taxes in a single country, providing the idea for States to offer companies preferential treatments in order to attract them. Ireland began using such tax benefits in order to attract new investors and opportunities, becoming a hub of multinational corporations.
Following this initial decision, Apple accused the EU of playing a political game by “picking” on Ireland as a ploy in order to harmonize taxes across the EU.
Just 4 years after this decision was issued, Apple challenged the Commission in front of the general court of the EU and managed to overrule the initial decision based on the fact that the Commission had failed to show that Apple had received an economic advantage in Ireland. Ireland herself surprisingly challenged the decision as well, arguing that the ruling infringed its sovereignty over tax policy.
Featured Image Courtesy of Sean Gallup / Getty Images – Apple´s icon
The Present Ruling and What it Means:
Now, 8 years later, the CJEU has overturned the verdict of 2020, reinstating the initial conclusions from 2016 that the reduced taxes paid by Apple were not a lawful State aid from Ireland and the tax rulings they based themselves on were false. They ruled that “Ireland granted Apple unlawful aid which Ireland is required to recover”. This decision by the CJEU was labeled as a “win for the commission” by Vestager as she witnessed a shift in public attitudes towards aggressive tax planning.
The reinstatement of the 2016 decision has many implications for multinationals and States. First, multinationals can expect stricter scrutiny from the European Commission when it comes to their tax practices. This increased scrutiny will hopefully ensure that multinationals refrain from carrying out miscellaneous activities. Second, the retroactivity of the tax payments will serve as further stricter scrutiny as businesses will be aware that they will be forced to pay taxes they evaded in the past on top of whatever other penalties they may face at the present moment. Ultimately, the ruling serves to push for more transparency within tax practices to ensure fair competition and treatment between players in the market.
Featured Image courtesy of Nicolas Tucat/AFP/Getty Images- “EU Commission rules against Apple.”
