Table of Contents
1. The Apple Case: The Commission Won . . . But did the EU Lose?
Adolfo Martín Jiménez
2. The poisoned Apple: is the Court of Justice seeking Justice through legal Misinterpretation? Romero J.S. Tavares
3. The Apple case: ‘Wrong‘ Questions, misguided Answers, regulatory Distortion? Scott Wilkie
4. Harvest Time or Apple Grand Finale
Svitlana Buriak
5. Is the Apple Case of Historical Relevance Only?
Juan Jorge Piernas López
6. Cases C-555/22 P, C-556/22 P and C-564/22 P UK and ITV v Commission: just like Apple, except completely different?
Stephen Daly
The Apple Case: The Commission Won . . . But did the EU Lose?
Adolfo Martín Jiménez
The Apple judgment, C-465/20 P, is the end (the ‘Grand Finale’, as S. Buriak puts it) of a story that started in the US Senate, with the recognition by Apple’s CEO before a US Senate Committee in May 2013 that the company had received a ‘tax incentive arrangement’ in Ireland or that the taxes paid for sales outside the US were at a very low rate.1 Unsurprisingly, state aid investigations by the EU Commission against Apple were initiated shortly after, on 12 June 2013 (see Commission Decision 2017/1283 of 30 August 2016, para. 1).
These were the years of the OECD’s BEPS Plan in the post 2008 financial crisis period, where the fight against aggressive tax planning was the main goal of the G-7, G-20, the OECD, and, even more intensively, the EU. In this period, despite the complaint that the unanimity rule (Article 115 TFEU) was a ‘blocker’ to the harmonisation of direct taxes in the EU, the EU legislator was surprisingly efficient in quickly passing all kinds of Directives (e.g. the different reforms of the Directive on Administrative Cooperation (‘DAC’)2, the Anti-Tax Avoidance Directive 1 (‘ATAD 1’) and the ATAD 2, or the P2 Directive) that tried to fight against aggressive tax planning (whatever this non-legal concept means), tax avoidance and fraud or tax competition.3 Article 107(1) TFEU was also used by the Commission to pursue such a goal, in particular, to fight the so-called ‘sweetheart tax deals’ (tax rulings) granted by different EU Member States to MNEs.
The overall strategy has led to some not always justified and disproportionate burdens for EU (and third country) MNEs. It was hoped that, at some point, the CJEU would stop the most controversial actions by the EU legislator or the Commission in their fight against aggressive tax planning in the past years. This was, in particular, the case with the Commission’s use of Article 107(1) TFEU. Such an article is especially apt to deal with distortions to competition and trade (discrimination in favour of some taxpayers) ‘within’ the European Union, but trying to use it to fight tax incentives given in third countries (i.e. the US), even if their effect is the non-taxation of MNEs’ profits, entails a reinterpretation for which Article 107(1) TFEU was not
1. See Testimony of T. Cook Offshore Profit Shifting and the U.S tax code—part 2 (Apple inc.), Hearing before the Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs United States Senate one Hundred Thirteenth Congress, May 21, 2013, p. 35 ff. especially at p. 46. The Testimony was echoed on the press, see, for instance, ‘Apple issue goes to the core of tax matters in Ireland’, Irish Independent 15 June 2014 (available here) or ‘Disarming Senators, Apple Chief Eases Tax Tensions’, New York Times, 21 May 2013 (available here).
2. As known, this Directive has gone through a number of amendments through the years to incorporate OECD standards but also to define new ones (the so called ‘DACs’ until number DAC 8, with a proposal already for DAC 9).
3. See on the paradoxical effect of the unanimity rule A. Martín Jiménez, ‘The EU (Direct) Tax Policy: Reflections on Current Trends’ in E.Kemmeren, C.Peters and C. Di Pietro, A Journey Through European and International Taxation: Liber Amicorum in Honour of Peter Essers, Kluwer Law International, 2024.
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designed,4 with the (unforeseen) consequence of attracting to the EU profits from non-EU States granting tax incentives (as Wilkie argues, no subsidy directly granted by the US could be regarded as contrary to Article 107(1) TFEU, but it seemed that equivalent tax incentives could fall within the Commission’s theory). Such a stretch in the application of Article 107(1) TFEU flies in the face of fundamental EU principles such as the rule of law, legality or legal certainty.
The Apple judgment of the General Court, probably with some flaws which are not really material in the overall picture considered in such a decision,5 gave some hope that the EU Courts would control the Commission in its use of Article 107(1) TFEU (see A. Martín and J. Piernas, ‘The Apple Case: Who Wins? What’s Next?’). Some further judgments of the Court of Justice reinforced that impression (e.g. FIAT, C-885/19 P and C-898/19 P; Engie, C-451/21 P and C-454/21 P; Amazon, C-457/21 P), with the curious anecdote that it was probably Ireland’s pleas in FIAT that permitted Luxembourg and FIAT to win their case (and, as Ireland and Apple probably hoped, eventually also the Apple case). After those judgments, Article 107(1) TFEU seemed to be redirected to the meaning it should probably have: any selective tax advantage should be linked with a derogation from the tax system of a Member State, as interpreted and applied by that State, not with an ideal hypothesis of the arm’s-length standard that indirectly permitted the EU Commission to attract to the Member States profits that simply do not belong there (with the excuse that they are not taxed in the state that should do it). The message of the Court of Justice after FIAT, Engie and Amazon was clear: tax rulings (or any other selective advantage derived from administrative decisions) could be attacked when they entailed derogations of the tax system of an EU Member State, but the benchmark (the tax system) and the exception (derogation) could not be defined with creative or theoretical interpretations beyond what national law regulates and how it is regularly interpreted. In this respect, the burden of proof for the Commission was set very high by the Court of Justice.
All of a sudden, everything changed with the Court of Justice’s final judgment in Apple. Not only were the precedents in FIAT, Engie or Amazon not valid in Apple, although they were re-activated one week later in UK and ITV v. Commission, C-555/22 P, C-556/22 P and C-564/22 P (see S. Daly), but, with some controversial conclusions on the impossibility to review the assumptions made by the General Court (‘res iudicata’) on the system of reference to determine whether there is state aid, the Court of Justice built its own (wrongful) interpretation of the arm’s-length / allocation of profits rules to permanent establishments (‘PEs’) to conclude that all the untaxed ‘Ocean profits’ of Apple belong to Ireland. Despite all the apparently ‘sophisticated reasoning’ of the Court of Justice, one does not need to be a transfer pricing expert to conclude that the allocation of the around 13 billion euros (plus interest) to Ireland was not the correct interpretation of the transfer pricing / allocation of profits to PEs rules in Ireland or
4. Precisely for this reason the Foreign Subsidies Regulation was approved, see Regulation (EU) 2022/2560.
5. The General Court’s analogy between Irish law and the OECD’s AOA was not ideal to define the benchmark against which to assess the selectivity of the ruling. Later judgments of the Court of Justice like FIAT, Engie, Amazon showed it was wrong to hypothesize the benchmark and that the Commission should have really understood first the national standard and its interpretation. Since this was regarded as res iudicata by the Court of Justice, there was no opportunity to review this assumption. For the final decision of the General Court, this assumption was not however relevant in view of the mistakes the Commission made in its analysis of the facts and domestic law.
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internationally, neither for those in force in the 1990s, where the first tax ruling was granted to Apple, nor those after that time, with the current rules as they have evolved in the international scene (the AOA of the OECD of 2010, or the OECD TP rules) (see the analysis of Buriak , from a strict technical transfer pricing perspective, and Tavares or Wilkie).
True, the initial Irish rulings probably gave Apple some ‘special treatment’ in Ireland until 20146 and this could have been corrected with Article 107(1) TFEU, but most of the ‘sweetheart dealing’ has its origins and roots in the US tax system (see Tavares and Wilkie). In essence, the main consequence of the Apple decision is that profits are being subject to tax where they do not really belong (leaving aside the multiple problems in executing the Court of Justice’s decision, due to the potential double taxation in the US after changes in its legislation, or the appeals the recovery may bring). This effect is achieved not only with a controversial interpretation of the arm’s-length standard and the rules of attribution of profits to PEs in Ireland, but, in addition, with equally questionable procedural decisions: why is it that the Court of Justice cannot review the determination of the system of reference by the General Court with the ‘res iudicata’ excuse when this can effectively lead to a blatantly unfair result (or given that the Court of Justice has done that before without further ado)? Why did the Court of Justice have to take a final decision (rather than remanding the case to the General Court) when it knew that the rejection of some evidence or refusal to re-examine the right benchmark would lead to an unfounded result (certainly not one in line with the arm’slength standard)? Why did the Court of Justice depart from its precedents (FIAT, Amazon, Engie) only to go back to them one week later in UK and ITV v. Commission? (see, for instance, J. Piernas and S.Daly).
The Commission certainly won the case, but at what cost? A use of Article 107(1) TFEU that distorts its functioning and its role, legal uncertainty for so many years (2013-2024),7 not only for Apple or Ireland, but also for tax authorities and taxpayers in the EU (or third States considering investments in the EU), as well as dubious results in terms of compliance with and respect of EU fundamental legal principles. All this with the blessing of the Court of Justice, in a highly controversial judgment that is either wrong or in breach of EU law itself (see also Tavares or Wilkie). It is true that the crusade of the EU Commission to fight sweetheart tax rulings in the Member States may have had practical effects to limit this practice in the past 10-15 years, and may have also helped in the adoption of some of the Directives fighting against aggressive tax planning. It is also possible that the Apple judgement, as such, may have limited legal effects for the future (historical relevance only, as the Irish Government or J. Piernas put it), only for some cases still not decided, and, even then, the Court of Justice can use its ‘other precedents’ (FIAT, Engie, Amazon, UK v. Commission). Moreover, the Commission does not seem to have any willingness to pursue new tax ruling investigations and it appears that its main priorities in this new period are to declutter the EU tax rules and foster EU competitiveness. But the Apple and tax ruling saga, however, casts doubt on the role the EU can assume with regard to, inter alia, transfer pricing (which, indirectly, probably may also affect the fate of the controversial proposed draft directive on transfer pricing ). More importantly, the damage to fundamental legal principles, and to the Court of Justice’s prestige (see Tavares), may be a heavier burden to bear in a new era that tries to look ahead for a more competitive EU.
6. The legislation was changed after that year in Ireland and Apple’s new structure after 2015 is not affected by the disputes before the EU courts.
7. Providing legal certainty was one of the goals, importantly affected by the Apple judgment, of the Commission Notice on the notion of State aid as referred to in Article 107(1) TFEU.
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The author thanks J. Piernas, University of Murcia (Spain), for his comments on a previous draft. The usual disclaimer applies.
Adolfo Martín Jiménez is a Professor of Tax Law at the University of Cádiz (Spain).
SUGGESTED CITATION: Martín Jiménez, A.; “The Apple Case: The Commission Won . . . But did the EU Lose?”, EU Law Live, 13/11/2024, https://eulawlive.com/op-ed-the-apple-case-the-commission-won-but-did-the-eu-lose/