What Happened with Apple?

In the recent past the European Commission has ruled that Cupertino based tech giant saved $ 14.3 billion in taxes from 2004-2014 by striking favourable deals with Irish Government.

European Commission (“EU”) has contested that Irish government has entered into a deal termed as a “sweetheart deal” with Apple which helped the tech giant to save taxes and pay taxes as low as .005%.  Ireland has already got the lowest corporate tax rate i.e. @ 12.5%.

Under EU state aid rule’s it is illegal for any country to give preferential treatment to one company over another when they are both subject to the same tax rules in that state.

Most of the tech giants have chosen Ireland as their headquarters. Apple has been based in Cork since 1980 and headquarters for social media giants Google, Facebook, Twitter, and LinkedIn are also based in Dublin’s Silicon Docks. Apple itself is Ireland’s largest individual taxpayer.

EU’s General Court has turned down the ruling of European Commission of 2016 which held that Apple has been given illegal tax breaks by Dublin, Ireland. The ruling was challenged by both Apple and Ireland government.

Had this ruling been upheld, Irish government would have received a favourable punishment of $ 14.3 billion in the form of tax demand. However, Ireland considers the judgment as a relief, as it will continue attracting the funding of the tech giants.

As per Ireland, no added advantage is provided to Apple for incorporating its companies in Ireland, whereas EU is of the view that this arrangement gave Apple an undue advantage that is illegal under EU state aid rules.

Further, until recently, US tax rules meant that payment of such tax could be deferred, and Apple was taking advantage of that. But those rules changed in 2017 and in 2018 Apple began paying $37 billion in tax on foreign profits to the US as a result. Approx $21 billion of this relates to the time period (2004-2014) being covered by the Commission’s decision. Thus, even if the judgment is appealed and reversed, Apple would be eligible to claim the credit of taxes paid in US against the liability arising towards Ireland.

In past, EU has held the similar view with Starbucks tax dealings in Netherlands and a division of fiat in Luxembourg. The mere premise by EU General Court for overturning the apple demand is that EU cannot justify that the lower tax payable by Apple is “selective economic advantage” provided by Ireland to Apple. It is stated that

By today’s judgment, the General Court annuls the contested decision because the Commission did not succeed in showing to the requisite legal standard that there was an advantage for the purposes of Article 107(1) TFEU.

According to the General Court, the Commission was wrong to declare that ASI and AOE (Apple Sales International and Apple Operations Europe) had been granted a selective economic advantage, and by extension, state aid.”

The judgment can be appealed by the EU, limited to points of law, and brought before the European Court of Justice within two months and ten days from the date of judgment.

Apple changed its structures in 2015 and thus the issue involves the taxes only till 2014.