General Court of EU annuls European Commission decision on Irish Apple tax rulings

July 15, 2020

The General Court has ruled in favour of Apple and the Irish tax authorities in the case of Ireland v Commission T-778/16.

In 2016 the Commission adopted a decision concerning two tax rulings by the Irish tax authorities relating to two Apple entities that were companies incorporated in Ireland but not resident in Ireland for tax purposes.

The tax rulings endorsed the methods used by Apple to ascertain its chargeable profits in Ireland, relating to the trading activity of the respective Irish branches. The rulings applied between 1991 and 2014 when Apple’s new business structure was implemented in Ireland.

The European Commission considered that the tax rulings constituted State aid unlawfully put into effect by Ireland. The aid was declared incompatible with the internal market. The Commission demanded the recovery of the aid in question. According to the Commission’s calculations, Ireland had granted Apple 13 billion euro in unlawful tax advantages. 

Ireland and Apple claimed that the General Court should annul the Commission’s decision.

The court’s decision

The General Court has annulled the Commission’s decision because it did not succeed in showing to the requisite legal standard that there was an advantage under Article 107(1) TFEU. According to the General Court, the Commission was wrong to declare that Apple had been granted a selective economic advantage and, by extension, State aid.

The General Court endorsed the Commission’s assessments relating to normal taxation under the applicable Irish tax law, especially with reference to the tools developed within the OECD, such as the arm’s length principle, to check whether the level of chargeable profits endorsed by the Irish tax authorities corresponded to that which would have been obtained under market conditions.

However, the General Court considered that the Commission incorrectly concluded that the Irish tax authorities had granted Apple an advantage as a result of not having allocated the Apple Group intellectual property licences held by the Irish entities and, consequently, all of their trading income, obtained from the Apple Group’s sales outside North and South America, to their Irish branches. According to the General Court, the Commission should have shown that that income represented the value of the activities actually carried out by the Irish branches themselves, in view of, among other things, the activities and functions actually performed by the Irish branches and the strategic decisions taken and implemented outside of those branches.

In addition, the General Court considered that the Commission did not succeed in demonstrating methodological errors in the contested tax rulings which would have led to a reduction in the Apple entities’ chargeable profits in Ireland. Although the General Court regretted 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 under Article 107(1) TFEU.

Furthermore, the General Court considered that the Commission did not prove that the contested tax rulings were the result of discretion exercised by the Irish tax authorities and that, accordingly, the two Apple entities had been granted a selective advantage.