Apple has suffered a major defeat as the European Union’s top court overturned an earlier ruling in favour of the tech giant and ordered the iPhone maker to pay 13 billion euros in back taxes.
The ruling relates to a 2016 case in which EU competition chief Margrethe Vestager said Ireland had given the company an illegal special deal that resulted in a tax rate of less than 1%.
In its final ruling on Tuesday, the European Court of Justice said it “affirms the European Commission’s 2016 decision that Ireland has given unlawful aid to Apple and that Ireland must recoup it.”
A lower court had annulled the commission’s order in 2020, but the ECJ’s decision to overturn that ruling was unexpectedly decisive.
Apple CEO Tim Cook previously dismissed the European Commission’s position as “complete political nonsense.” The company said on Tuesday that the EU was “trying to change the rules retroactively and ignoring the fact that our income is already subject to tax in the United States as required by international tax law.”
“This is a victory for the Commission, and also for a level playing field in the internal market and tax fairness,” Vestager said after the ECJ’s ruling.
The Irish Treasury said it would consider the ruling but added: “Ireland’s position is that Ireland does not grant preferential tax treatment to any company or taxpayer.”
The case is being watched across the EU as a watershed moment for tax issues surrounding big tech companies in Europe, after previous efforts by the EU to investigate the companies’ arrangements with member states have failed.
Last year, Amazon won a court battle over its tax procedures in Luxembourg, when the European Court of Justice ruled that the Commission could not force the U.S. e-tailer giant to pay 250 million euros in back taxes to Luxembourg. Brussels also lost a similar case over the tax treatment of Starbucks in the Netherlands, but did not appeal the ruling.
But on Tuesday the European Court of Justice upheld the commission’s earlier ruling that Apple’s Irish tax regime excluded profits from intellectual property licenses held by its international and European units and amounted to state aid.
Apple ended its “Double Irish” structure after Ireland closed a loophole in 2015, while new global minimum tax rates that came into effect in many countries this year apply a 15% effective global minimum tax rate to corporate profits.
But Dan Needle, founder of the think tank Tax Policy Associates, said the ECJ’s Apple ruling would still have a “significant impact” and force member states and multinational companies to rethink how profits are allocated between countries.
“This is a major victory for the Commission. Its strategy of using competition law and state aid to bypass domestic tax systems has been successful. I, and most observers, thought this would not happen but we were wrong,” Needle said.
Aidan Regan, associate professor of political economy at University College Dublin, said there would be a “loud clamour from the public” in Ireland for the money to be used to tackle big challenges, particularly the country’s chronic housing crisis.
Ireland has been ordered to collect €13 billion that has been placed in escrow accounts over the past six years while the parties await the European Court of Justice’s ruling. The total amount in the accounts is down from the original €14.3 billion set aside in 2018 because the funds were invested in euro zone government bonds, which have fallen in value.
Also on Tuesday, Brussels won a landmark antitrust victory against Google after the European Court of Justice ruled that the search giant had abused its market power to gain an illegal and unfair advantage by ranking its shopping service above rivals. The court upheld a 2.4 billion euro EU competition fine imposed on Google in the case.
Google said: “We are disappointed with the court’s decision, which concerns very specific facts. We made changes in 2017 to comply with the European Commission’s decision. Our approach has been successful for more than seven years, generating billions of clicks across over 800 comparison shopping services.”
The two rulings are victories for Vestager, the EU competition commissioner who is due to step down this year, and who has taken on a string of high-profile cases targeting the world’s largest technology companies during her decade in the position.
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