EU Court Throws Out $15 Billion Apple Tax Penalty

People wait in front of an Apple store in Munich before the worldwide launch of the iPhone 6s in September 2015. (AP Photo/Matthias Schrader, File)

LUXEMBOURG (CN) — The European Union’s second-highest court sided with Apple in a $15 billion case on Wednesday, holding that Ireland did not give the tech giant an illegal tax break.

The European General Court found that the EU did not “succeed in showing to the requisite legal standard that there was a selective advantage” in agreements between Apple and Ireland that allowed the iPhone maker to reduce its tax liability in the EU. 

EU regulators told the Irish government in 2014 that they thought two sweetheart tax deals between the tech giant and the island nation broke EU competitiveness rules. Ireland disagreed, leading to the country declining billions in tax revenues, but the EU persisted and ordered Apple to pay 13.1 billion euros ($15 billion) anyway. 

It was a novel idea from the bloc’s competition commissioner, Margrethe Vestager, who applied existing regulations against state aid – when a government provides a beneficial financial arrangement to a certain company or industry – to tax arrangements. 

But the five-judge panel of the General Court was unconvinced. Its ruling says the tax agreements “are not of such a kind as to show that the Irish tax authorities have a broad discretion which leads to the recipient companies being given favourable treatment as compared with other companies in a comparable situation.” 

European Union Competition Commissioner Margrethe Vestager speaks during a press conference at EU headquarters in Brussels in August 2016. (AP Photo/Virginia Mayo, File)

Over two days of hearings in September, the European Commission, the EU’s executive branch, tried to convince the court that the case wasn’t “political crap,” as Apple CEO Tim Cook claimed, but a genuine attempt to ensure multinationals paid their fair share of taxes. 

“The tax benefits are why Apple is in Ireland,” lawyer Carsten Zatschler said on behalf of the European Commission during the hearings. 

But according to Ireland, Apple should only pay taxes based on profits created within the country, not on worldwide profits. The tech giant maintains that its research and development is conducted in the United States and therefore profits on its intellectual property should be beyond the Irish tax authorities.

The General Court agreed Wednesday, annulling the EU tax order against Apple.

“This case was not about how much tax we pay, but where we are required to pay it,” Apple said in a statement. “We’re proud to be the largest taxpayer in the world as we know the important role tax payments play in society.” 

The full amount, 13.1 billion euros ($15 billion) in back taxes plus 1.2 billion euros ($1.4 billion) in interest, has been sitting in an escrow account since 2018. 

The Irish government said in a statement it “welcomed” the news that it wouldn’t be adding the 13 billion euros to its coffers, despite a soaring budget deficit caused by the Covid-19 crisis. American-based multinationals operate 25 of the 50 largest companies in Ireland and pay an estimated 80% of all Irish corporate tax.

The creative approach to curtailing tax breaks for multinationals has had mixed results at the EU court system. The General Court upheld a penalty against Fiat last year but nixed one against Starbucks. A similar case involving Luxembourg and Amazon is ongoing.

“We will carefully study the judgment and reflect on possible next steps,” Vestager said in a statement.

The European Commission can appeal the ruling to the EU’s highest court, the European Court of Justice.

The commission proposed a new package of tax regulations on Wednesday that it says will stop tax abuse, curbing unfair competition and increasing transparency. 

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