Apple's $ 14 Billion tax controversy in European Court of Justice takes a new turn

Background:

In 2016, the European Commission concluded that Ireland had granted Apple unlawful state aid by allowing the tech giant to pay a significantly lower corporate tax rate than other companies. The Commission argued that Ireland had effectively given Apple preferential tax treatment by enabling it to route the bulk of its European profits through Irish subsidiaries that paid very little tax. This arrangement allowed Apple to pay an effective tax rate as low as 0.005% on some of its profits for certain years.

The EC ruled that Ireland must recover €13 billion ($ 14 billion) in back taxes from Apple, plus interest, as compensation for the benefits Apple had received through this tax arrangement. Both Apple and the Irish government disagreed with the ruling. Ireland argued that no special treatment had been given to Apple and that its tax system followed national and international rules. Apple, on the other hand, claimed that it had complied with Irish tax laws and that the Commission was retroactively altering established tax rules.

Legal Proceedings:

In response to the EC’s ruling, both Apple and Ireland appealed the decision to the General Court of the European Union, the EU's second-highest court. In July 2020, the court ruled in favor of Apple and Ireland, overturning the Commission’s decision. The court found that the European Commission had not sufficiently proven that Apple had received illegal state aid from Ireland.

However, in September 2020, the European Commission announced that it would appeal the General Court's decision to the European Court of Justice (ECJ), the EU’s highest court. The Commission maintained that Apple had indeed benefited from unfair tax advantages and that the ruling from the General Court should be overturned.

Broader Implications:

This case has broader significance in the context of EU tax policy and corporate regulation. The European Commission, led by Competition Commissioner Margrethe Vestager, has taken a strong stance against what it sees as aggressive tax planning by multinational corporations, where companies use tax loopholes to minimize their tax liabilities. The Apple case is emblematic of these efforts, as the Commission seeks to ensure that large corporations pay their fair share of taxes in the EU.

The legal battle also touches on the balance of power between EU institutions and member states, particularly regarding tax sovereignty. Ireland’s low corporate tax rate has attracted many multinational corporations, and it has fiercely defended its right to set its own tax policies. A ruling in favor of the Commission could set a precedent for how state aid and tax issues are handled in the EU.

Earlier this month, EU Court of Justice in an advisory opinion mentioned that Apple’s win in a lower EU court should be re-examined. The top EU tribunal is set to issue its binding ruling in the coming months.

EU State Aid:

EU state aid refers to government assistance or support provided by EU member states to companies, organizations, or industries that could potentially distort competition within the European Union’s internal market. The European Union has strict rules governing state aid to ensure fair competition and prevent member states from giving undue advantage to certain companies or sectors that could undermine the single market.

State aid rules are part of the EU’s broader competition policy, which seeks to maintain a level playing field across the internal market. By limiting unfair advantages given by governments, the EU aims to promote efficient competition and prevent protectionism. However, state aid has become a politically sensitive issue, particularly in cases involving tax rulings for multinational corporations and state support during economic crises (such as the COVID-19 pandemic).

The EU state aid regime is a cornerstone of the single market and continues to evolve to address new challenges, such as globalization, tax avoidance, and environmental sustainability.