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CJEU Gives Final Judgment In Apple State Aid Case

Wednesday 11th September 2024

The Court of Justice of the EU has set aside the judgment of the General Court concerning tax rulings issued by Ireland in favour of Apple. In its final judgment, the CJ confirmed the EC’s decision that Ireland had granted Apple unlawful aid which Ireland is required to recover.

Following the opening in June 2014 of an in-depth investigation by the European Commission to examine whether EU state aid rules had been broken by tax authorities in Ireland, the EC concluded in 2016 that Ireland had given illegal tax benefits to Apple worth up to €13bn.

After the release of the EC’s full decision, the Irish Department of Finance issued a summary of its main lines of argument in Ireland’s annulment application lodged with the General Court of the EU in November 2016. Apple also filed an appeal before the GC.

In 2020, the GC annulled the contested decision because it found that the Commission had not succeeded in showing to the requisite legal standard that there was an advantage for the purposes of Article 107(1) TFEU. The GC also held that the Commission was wrong to declare that the two Apple subsidiaries had been granted a selective economic advantage and, by extension, state aid.

According to the GC, the Commission had incorrectly concluded in its primary line of reasoning that the Irish tax authorities had granted the Apple subsidiaries ASI and AOE an advantage as a result of not having allocated all of ASI and AOE’s trading income, obtained from the Apple Group’s sales outside North and South America, to their Irish branches. According to the GC, the EC should have shown that that income represented the value of the activities actually carried out by the Irish branches themselves, and not also from the strategic decisions taken and implemented outside of those branches.

In addition, the GC considered that the Commission had not succeeded in demonstrating methodological errors in the contested tax rulings which would have led to a reduction in ASI and AOE’s chargeable profits in Ireland.

Whilst the GC noted the incomplete and occasionally inconsistent nature of the contested tax rulings, the defects identified by the Commission were not, in themselves, sufficient to prove the existence of an advantage for the purposes of Article 107(1) TFEU. Furthermore, the GC considered that the Commission did not prove, in its alternative line of reasoning, that the contested tax rulings were the result of discretion exercised by the Irish tax authorities and that, ASI and AOE had been granted a selective advantage.

The Commission lodged an appeal with the Court of Justice, asking it to set aside the judgment of the General Court.

It is noted that in November 2023, the AG issued his opinion which proposed that the Court set aside the judgment and refer the case back to the GC for a new decision on the merits. According to the AG, the GC committed a series of errors in law when it ruled that the Commission had not shown to the requisite legal standard that the intellectual property licences held by ASI and AOE and related profits, generated by the sales of Apple products outside the US, had to be attributed for tax purposes to the Irish branches.

In its judgment, the Court of Justice has now held that the GC erred when it ruled that the Commission had not proved sufficiently that the intellectual property licences held by ASI and AOE and related profits, generated by sales of Apple products outside the US, should have been allocated, for tax purposes, to the Irish branches of ASI and AOE.

In particular, the GC erred when it ruled that the Commission’s primary line of reasoning was based on erroneous assessments of normal taxation under the Irish tax law applicable in the case, and when it upheld the complaints raised by Ireland and by ASI and AOE regarding the Commission’s factual assessments of the activities of the Irish branches of ASI and AOE and of activities outside those branches.

After setting aside the judgment under appeal, the Court of Justice confirmed the EC’s approach according to which, under the relevant provision of Irish law relating to the calculation of tax payable by non-resident companies, the activities of the branches of ASI and AOE in Ireland had to be compared not to activities of other Apple Group companies, for example a parent company in the US, but to those of other entities of those companies, particularly their head offices outside Ireland.

The Irish Government has commented on the Court of Justice’s judgment that it does not give preferential treatment to companies or taxpayers but will arrange for the assets held on escrow to be transferred to Ireland.

If you would like further details on the above, please contact Keith Rushen on 0207 486 2378.

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