According to the Court, the EC failed to demonstrate the extent to which the taxable income came from Apple’s Irish branches.
The EC asked Apple to pay €13bn: In 2016, the European Commission adopted a decision concerning two tax rulings issued by the Irish tax authorities in January 1991 and in May 2007 in favour of Apple Sales International (ASI) and Apple Operations Europe (AOE), which were companies incorporated in Ireland but not tax resident in Ireland. These two rulings endorsed the methods used by ASI and AOE to determine their taxable profits in Ireland, relating to the trading activity of their respective Irish branches. In its 2016 decision, the EC considered that the two Irish rulings constituted State aid (unlawfully put into effect by Ireland), and were incompatible with the internal market. The EC demanded the recovery of the aid in question, which was estimated at €13bn in unlawful tax advantages. Ireland appealed the ruling to the European Court of Justice (ECJ).
The ECJ sides with Ireland: On 15 July 2020, the ECJ released its verdict in favour of Ireland, and annulled the EC’s decision of 2016. The Court considers that the Commission incorrectly concluded that the Irish tax authorities had granted Apple an advantage by not allocating ASI and AOE’s trading income, obtained from Apple’s sales outside North and South America, to their Irish branches. It said the EC should have shown that that income came from activities actually carried out by the Irish branches themselves.
Apple encourages efforts to agree on a digital tax: Apple welcomed the ruling, noting that the case was “not about how much tax we pay, but where we are required to pay it”. The company also said it welcomes the current efforts to rethink taxation for digital services at a global level. The EC stated it will reflect on possible next steps, and continue to assess whether any national tax measures result in illegal state aid.
