As early as 2016, the EU Commission  ruled in a formal investigation that Ireland's tax breaks for Apple constituted unlawful state aid that distorted competition. Ireland and Apple jointly defended themselves against this with actions for annulment. In 2020, the General Court ruled in favour of the company, having found that, while there were gaps in the tax legislation, there was no unlawful preferential treatment. However, after further legal action involving the European Court of Justice (ECJ), the ECJ recently definitively shared the EU Commission's assessment: Ireland's tax legislation constitutes unlawful tax relief that allowed Apple to underpay around 13 billion euros in taxes between 1991 and 2014. As this form of tax relief was only granted to Apple, it constituted a competition-distorting “selective advantage”.

Apple's corporate structure and state aid by Ireland

Apple Inc. has branches of Apple Sales International Ltd. (ASI) and Apple Operations Europe Ltd. (AOE) in Ireland. Apple argued that the Irish branches primarily managed sales and distribution in Europe and other regions such as India, but that all other steps for the design and production of the devices were mainly carried out in the US. On this basis, the Irish tax authorities issued tax rulings to these two companies (ASI and AOE) in 1991 and 2007, in which the taxable profits were set as a percentage of only the operating costs of the branches. However, these companies were not considered tax residents of Ireland. And thanks to this reasoning, that the administrative headquarters of these two companies would not be in Ireland, a large portion of the profits remained effectively untaxed. Because of this construct, the effective profit tax rate of the Irish subsidiaries of the tech giant was only 0,05 per cent in 2011 and as low as 0,005 per cent in 2014.

Reactions to the judgment

After a number of failures before the ECJ, Margrethe Vestager was finally able to achieve success shortly before the end of her term in office as EU Commissioner for Competition. She regards the judgment as confirmation of her long-standing efforts in the fight against tax avoidance. She maintains that it is more worthwhile for companies to play by the rules and that fair competition promotes innovation. The EU Commission would continue to take action against companies that violate the rules.

A large majority of MEPs welcomed the judgment. They spoke out in favour of fair taxation of companies to promote fair competition in the internal market, competitiveness and the financing of public expenditure. Evelyn Regner (S&D) sees the judgment as “groundbreaking in the fight against tax avoidance, because it makes it clear that tax tricks are not only morally reprehensible, but now also illegal. This will help us to increasingly drain the tax swamps in Europe”. Others welcomed the ruling in principle but emphasised that it only concerns state aid and that Member States must retain the right to decide on tax regulations. The EU Commission and EU courts do not directly interfere in the tax regulations of member states in this matter, but rather examine whether the existing tax law systems are applied uniformly to companies at the national level.

Tove Maria Ryding, from the European Network on Debt and Development (Eurodad), notes that the verdict and the length of the proceedings show how complex and unfair things are in this area: “If we had a fair, transparent and effective global tax system, it would not take over 10 years to determine whether it was legal for a corporation to pay well under 1 per cent in tax.”

The consequences of aggressive tax avoidance

Some EU member states enable aggressive tax planning to make their locations more attractive to large multinational companies. Ireland's behaviour suggests that it was not interested in taxing Apple more to keep the company in the country. Ireland even ended up joining Apple in taking legal action against the EU Commission's decision. This kind of tax avoidance occurs at the expense of other member states that seek fair corporate taxation, and it distorts competition. Small and medium-sized enterprises, which pay their fair share of tax, are at a cost disadvantage as a result.

What is the way forward for fair taxation?

Ireland and other member states have now changed their tax structures so that cases like this are no longer possible. However, joint global and EU-wide initiatives are also needed to prevent a ”race to the bottom” in corporate tax legislation. AK has long been calling for more effective measures in the fight against tax havens. The OECD Declaration and subsequent EU Directive on minimum taxation of large corporations are a good start. There is also a current proposal by the EU Commission for harmonised transfer pricing rules in the EU. The United Nations is negotiating a new Global Tax Convention. After all, public revenue is urgently needed to finance infrastructure, education, social services, public health or repairs of disaster damage such as that caused by this year's storms. From the point of view of AK, large companies must also make their contribution in the form of fair taxes.

Further information

ECJ: Judgment C-465/20 P, European Commission against Ireland, Apple

EU Commission: Remarks by Executive Vice-President Vestager

AK EUROPA: Minimum level of taxation for large corporations becomes reality

A&W-Blog: Die Einführung der globalen Mindeststeuer als Beispiel für die Notwendigkeit einer gemeinsamen europäischen Steuerpolitik (German only)

A&W-Blog: Die globale Mindeststeuer – Revolution bei der Konzernbesteuerung oder einfach nur eine Mogelpackung (German only)

AK: Mein Recht auf ein gerechtes Steuersystem  (German only)

A&W-Blog: Internetgiganten sind ein Fall für das EU-Missbrauchsrecht (German only)

Social Europe: Ireland, the EU and the Apple tax case

EURACTIV: Top EU court orders Apple to pay €13 billion tax bill

Forbes: Getting to the core of the Apple State Aid Decision