The General Court of the European Union (Europe’s second highest court) handed down its judgement yesterday in the cases of Ireland V Commission T-778/16 and Apple Sales International and Apple Operations Europe V Commission T-892/16 (“the Apple case”). To recap, in 2016 the European Commission found that opinions received by Apple in 1991 and 2007 from the Irish Revenue Commissioners constituted a form of illegal State Aid. In effect they determined that Ireland had provided Apple with an unfair competitive advantage vis-à-vis other businesses. The Irish Government and Apple in 2016 appealed the decision of the European Commission.
This decision of the European Court has been eagerly anticipated by tax practitioners in Ireland and further afield, politicians and multi-nationals. Whilst many regard the case as a “tax case”, technically it wasn’t as the EU does not have competency over national tax legislation. Member States have sovereignty over their taxation policies. However by the European Commissioner pitching this as a case in respect of “illegal State Aid” it brought the matter within the competency of the European Commission and therefore put Ireland’s tax regime in the international spotlight.
The amount of the tax involved, €13bn, and the profile of the Taxpayer, Apple, was guaranteed to create international headlines. Meanwhile the technical nature of the dispute and concepts such as transfer pricing or aligning profits with risk and functions was glossed over and tended not to grab the headlines. However, these concepts were ultimately what were at the crux of the case.
Undoubtedly Ireland’s international reputation suffered serious damage as a result of the Commission finding and the headlines that were generated worldwide. As a result of the case Ireland has actively introduced legislation to close off perceived “loopholes” and to repair its reputation. This case has many interesting sub-plots including the incursion of the EU Commission into the taxation policy of a Member State by the back door, a political v legal dimension, with arguably the EU Commissioner driving a political agenda not necessarily having regard to the underlying legal issues and perhaps a perceived David v Goliath struggle - the European Commission trying to bully a small EU Member State into submission (quite dangerous with the slogan “take back control” being at the forefront of the Brexit debate). The European Court has emphatically rejected the EU Commission’s decision, handing it a bloody nose in the process. It is worth noting that the EU Court in previous decisions has rejected a number of other findings by the EU Commissioner.
The Commission is considering whether to appeal the decision to a Higher Court. Ireland’s taxation regime has always been rules based and transparent. Without question there will be changes to international tax rules within the EU and wider afield. These changes however should take place through negotiation and with the consent of Member States, not via the back door.