Apple has been dealt a blow in its €14.3 billion tax dispute with the European Union after an adviser to the EU’s top court said an earlier ruling on its Irish business should be archived.
Giovanni Pitruzzella, Advocate General of the Court of Justice of the European Union, the EU’s top court, said on Thursday (8) that a landmark ruling annulling the EU’s order for Apple to pay 14.3 billion euros in back taxes Ireland “should be set aside”.
Such opinions of advocates general do not necessarily need to be complied with, but they often influence the final judgments of the EU’s highest court.
The General Court, the EU’s second-highest court, ruled in 2020 that while it supported the right to investigate national tax agreements, the European bloc did not prove that Apple had received an illegal economic benefit in Ireland in relation to taxes.
Pitruzzella said the court “committed a series of legal errors” and “failed to correctly assess the case and the consequences of certain methodological errors.” As a result, he said the court needed to “conduct a new assessment.”
A decision from the European court is expected next year.
Competition Commissioner Margrethe Vestager said in 2016 that Apple’s tax deals effectively gave the tech giant a tax rate of less than 1% and an unfair advantage over competitors, violating the bloc’s state aid rules.
Ireland collected €14.3 billion in disputed back taxes and interest from the company in 2018—money that has since been held in an escrow account while the legal process continues.
Aidan Regan, associate professor of political economy at University College Dublin and an expert on Irish corporate tax, said the commission’s argument was that Ireland in practice “gave Apple an unfair advantage in the market because they were able to accumulate tax-free profit for so long”.
Apple said the General Court’s ruling “was very clear that Apple received no selective advantages and no state aid, and we believe that should be upheld.”
Ireland also insisted that the company did not receive preferential treatment.
“It has always been and remains Ireland’s position that the correct amount of Irish tax was paid and that Ireland did not provide any state aid to Apple,” Finance Minister Michael McGrath said in a statement.
Policy to attract investment returns to the spotlight
Pitruzzella’s position highlights a long-standing Irish policy of keeping corporate tax low to attract investment. Its 12.5% tax rate helped attract multinational technology and pharmaceutical companies, leading to substantial profits. Revenues obtained from these taxes have tripled in the last eight years, reaching a record 22.6 billion euros (R$118.9 billion) last year.
Ireland is now creating a sovereign wealth fund to hold tax windfalls, but as the country prepares to raise its corporate tax rate to 15% in January in compliance with an OECD agreement, corporate tax revenues have fallen sharply in the last three months.
Any ruling by the Court of Justice of the European Union in favor of paying the tax to the Irish Treasury is likely to lead to calls from other EU countries and the US to claim part of any payment, Regan said.
The commission said it does not comment on opinions given by attorneys general.
The Apple case is part of a broader crackdown launched by the European Union in 2013 against alleged favorable tax deals in member states.
The commission has also had legal difficulties with other parts of its crackdown on tax deals. The bloc is appealing against a General Court ruling that annulled an order for Amazon to pay back taxes in Luxembourg.
Additionally, the commission lost a similar case over the Netherlands’ tax deals with Starbucks, but did not file an appeal.
Vestager is currently on leave from her position and is running for president of the European Investment Bank.
Alec Burnside, partner at Brussels-based law firm Dechert, said the European Union uses state aid legislation to focus on allegedly unfair tax treatment because member states fail to agree on tax legislation, which requires unanimity.
However, he added that such use of “old laws for new purposes raises questions of principle and practice, and the commission ends up in years of litigation.”