Apple Setback In EU $14 Billion Tax Row

Legal setback for Apple as it seeks to avoid to paying over $14 billion in back taxes, after EU clampdown on unfair state aid

Apple’s legal battle with the European Union over billions of dollars of unpaid back taxes continued this week.

An adviser to Europe’s top court, the EU Court of Justice (CJEU), announced on Thursday that an EU tribunal had made legal errors when in 2020 it had ruled in favour of Apple over a 13-billion-euro ($14 billion) tax order. The Advocate General said the lower court should review the case again.

“In his opinion, Advocate General Giovanni Pitruzzella proposes that the Court set aside the judgement and refer the case back to the General Court for a new decision on the merits,” the CJEU statement reads.

Apple state aid

The case is an involved affair that dates back to the early 2000s and tax decisions made by Ireland, where Apple has its European headquarters.

For years there had been complaints that big name tax firms were avoiding paying their fair share of tax within the European Union, by basing their European headquarters in “low tax” areas such as Ireland and Luxembourg.

The European Commission in 2014 had begun its investigation of Apple’s tax arrangements in Ireland, and two years later in 2016 concluded that Apple had been able to avoid taxation on almost all profits generated in the EU single market.

In 2016 the European Commission ordered a reluctant Irish government to recover up to 13 billion euros ($14bn) plus interest in “illegal tax benefits”.

But both Apple and the Irish government decided to appeal the fine, and that appeal began in September 2019. Apple told the EU’s General Court that the EC penalty “defies reality and common sense”.

While Apple and Dublin appealed against the ruling, Apple nevertheless had to hand over the full amount, which Ireland has been holding ever since in an escrow account.

The General Court of the European Union (GCEU) sided with Apple and the Irish government in July 2020, and rejected the 2016 European Commission order that Apple has to pay 13 billion euros ($14bn) in Irish back taxes.

But European Commission executive VP Margrethe Vestager appealed the General Court’s judgement of July 2020.

Apple argument

Ireland has accused the Commission of infringing upon its national sovereignty and undermining the country’s low corporate tax regime.

Ireland always argued it did not grant Apple any selective advantage, and cannot tax Apple on profits that are not taking place in the country.

Apple, for its part, has previously said it has abided by Irish and US tax laws, and that the tax rate it pays in Europe is low because key work such as design, engineering and development takes place in California.

Apple CEO Tim Cook has previously said the EC penalty has no basis in fact or in law, and that the Commission was ordering Apple to retroactively pay additional taxes to a government, that says Apple don’t owe it any more than Apple had already paid.

In May 2023 the European Commission relaunched its bid to force Apple to pay 13 billion euros ($14bn, £11bn) in back taxes before the EU’s highest court, arguing a lower court’s decision on the matter should be overturned due to legal errors.

Advocate General recommendation

Now the Advocate General Giovanni Pitruzzella for the EU Court of Justice (CJEU) has disagreed with the 2020 lower General Court decision, and proposed that the CJEU set aside the judgement and refer the case back to the lower tribunal.

“According to the Advocate General, the General Court committed a series of errors in law when it ruled that the Commission 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,” Pitruzzella said in a non-binding opinion.

“The Advocate General is also of the view that the General Court failed to assess correctly the substance and consequences of certain methodological errors that, according to the Commission decision, vitiated the tax rulings,” said Pitruzzella. “In the Advocate General’s opinion, it is therefore necessary for the General Court to carry out a new assessment.”

The CJEU, which will rule in the coming months, follows around four in five such recommendations.