Apple (NASDAQ: AAPL) Wins a Major Reprieve as the Directive by the EC for Ireland to Collect $15 Billion in Taxes From the Company Stands Annulled
Apple (NASDAQ:AAPL) won a major reprieve on Wednesday as the General Court of the European Union (GCEU) annulled a decision by the European Commission (EC) that had called upon Ireland to collect €13 billion ($15 billion) in taxes from the iPhone maker.
As per today’s ruling, the GCEU has concluded that the determination by the EC concerning Apple was erroneous as the company did not enjoy a selective economic advantage or any explicit state-backing. Specifically, the court noted that the EC failed to establish, up to the “requisite legal standard”, that Apple enjoyed any preferential treatment in Ireland that amounted to illegal state aid. The EC is now expected to appeal this decision by the GCEU.
As a refresher, the dispute arose when the European Commission concluded that two Irish tax rulings, issued in 1991 and 2007, were discriminatory in nature as they allowed for the lowering of Apple’s tax liability from 1 percent in 2003 to 0.005 percent in 2014. According to the EC, these tax rulings – a standard affair whereby states clarify the probable tax liabilities of a business – amounted to illegal state aid.
Bear in mind that Apple’s corporate structure in Ireland consists of two entities – Apple Sales International and Apple Operations Europe. Apple Sales International or the “head office” is one of the most profitable corporate entities in Ireland and holds the iPhone maker’s entire gamut of intellectual property as well as the rights to the company’s products and services outside of the Americas. However, the entity has no material physical presence in the country. As an illustration, Apple Sales international has no staff and its board of directors meets only occasionally to discuss the distribution of dividends as well as other administrative issues.
Apple and Ireland, however, have continued to dispute the EC’s findings. Apple’s argument rested on a number of principles. Firstly, Apple insists that its dealings with the Irish government broke no law and that the EU is trying to “retrofit” a new interpretation of the pertinent laws. Secondly, the company argued that in the 10-year period in question, it continued to make provisions for deferred U.S. tax liabilities even as it paid reduced taxes in Ireland. Moreover, these tax liabilities, amounting to $21 billion, were paid in 2014 and significantly exceed the punitive “fine” levied by the EC. Finally, Apple contends that taxes should be paid in the jurisdiction where the intellectual property resides.
Of course, today’s ruling will give fresh impetus to the EU-wide efforts of instituting a digital tax. An attempt by the EU to implement a Europe-wide 3 percent digital tax on U.S. internet firms was scuttled in December 2018 by Sweden, Denmark, and Ireland largely due to fears of retaliation from the Trump administration. As previously reported, over two dozen countries are currently in varying phases of implementing a digital tax on U.S. tech behemoths such as Apple, Google (NASDAQ:GOOGL), Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN). The rationale behind this concerted push stems from a widespread perception that these companies are not paying their fair share of taxes outside the U.S jurisdiction by domiciling assets and trademarks in tax havens such as Ireland.