UK and International Tax news

AG Gives Opinion On EC Appeal To ECJ In Apple State Aid Case

Thursday 9th November 2023

The Advocate General has issued his opinion in the European Commission’s appeal to the Court of Justice in the Apple State Aid case.

Following the opening in June 2014 of the 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.

Following 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 General Court.

In 2020, the General Court of the EU annulled the contested decision because the EC 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 EC 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 EC 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 EC had not succeed in demonstrating, in its subsidiary line of reasoning, 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 EC 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 EC 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, accordingly, ASI and AOE had been granted a selective advantage.

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

In his opinion, AG Pitruzzella proposes that the Court set aside the judgment and refer the case back to the General Court 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 EC 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 USA, had to be attributed for tax purposes to the Irish branches.

The AG also opined that the GC had failed to correctly assess the substance and consequences of certain methodological errors that, according to the EC decision, vitiated the tax rulings. In the AG’s opinion, it is therefore necessary for the GC to carry out a new assessment.  The AG’s opinion is not binding on the Court of Justice.

The Judges of the Court are now beginning their deliberations in this case and judgment will be given at a later date.

An appeal, on a point or points of law only, may be brought before the Court of Justice against a judgment or order of the General Court. If the appeal is admissible and well founded, the Court of Justice sets aside the judgment of the General Court. The Court of Justice may itself give final judgment in the case or refer it back to the General Court, which is bound by the decision given by the Court of Justice on the appeal.

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

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