Apple Vs. EU: Will the US tech giant ever pay for taking advantage of Ireland’s taxation?

Press conference by Margrethe Vestager, Member of the EC, on Apple’s antitrust case in Ireland
Date: 30/08/2016. Location: Brussels – EC/Berlaymont.© European Union, 2016 Source: EC – Audiovisual Service. Photographer: Georges Boulougouris

Apple Inc. together with the Irish government showed up yesterday at the EU’s second-highest court to appeal for the 13 billion euros EU tax order. The US corporation has decided to legally challenge the 2016 European Commission’s decision by claiming that its products and services are created in the US and thus the profits were due there.

However, the EC has been insisting that Apple took an unfair advantage towards the rest of the competition channeling most of its EU sale through the subsidiaries in Cork, Ireland. This appeal is likely to change the current status quo of Ireland as a tax heaven for multinationals.

But let’s take it from where all started; back in 2016.

Background

Almost three years ago, in August 2016, the European Commission ordered Ireland to collect €13 billion in back taxes from the US giant technology company Apple Inc., following an investigation into the multinational company’s affairs. The Commission argued that Ireland extended preferential tax treatment to Apple for years which resulted in Apple paying only minimal taxes to the Old Continent. Both Apple and Dublin appealed the ruling, saying that no such “sweetheart deal” has ever been in place and that Apple’s tax treatment was in line with Irish and European Union law.

Apple has already lodged the 13 billion euros into an escrow account during the second trimester of 2018 whereas the appeal is still in progress and is currently heard by the EU’s General Court. A two-day hearing began yesterday at the General Court in Luxembourg with California-based company to be represented by its Chief Financial Offer, Luca Maestri, and a delegation of six people.

Apple and Ireland against European Commission

During the first day of the hearing, Apple’s lawyer Daniel Beard challenged the 13 billion euros EU tax order. Mr Beard stated that:  “The commission contends that essentially all of Apple’s profits from all of its sales outside of the Americas must be attributed to two branches in Ireland. The branches’ activities did not involve creating, developing or managing those rights. Based on the facts of this case, the primary line defies reality and common sense”.

On the same side, the lawyers who represent Ireland in the appeal against the EC’s decision told yesterday that the case is “inconsistent” and “fundamentally flawed” in an attempt to show that this case is untenable. More specifically, former attorney general Paul Gallagher, who leads the team representing Ireland, stated: “Ireland has been the subject of entirely unjustified criticism. It is the commission that should be criticised.” Furthermore, Barrister Maurice Collins, another lawyer representing Ireland, mentioned that the EU executive body “set out during its investigation of Apple’s Irish tax payments to invent a novel and completely profit attribution theory to what was due to the Republic.”

Commission fights back

The European Commission lawyer Richard Lyal said that the aim of this order was to make sure that Apple’s Irish subsidiaries are taxed properly putting the blame to the Irish government as well. In detail, Richard Lyal stated: “To a large extent that (Apple’s argument that all its intellectual property-related activities take place in the United States) is perfectly correct and perfectly irrelevant… They (Ireland) simply accepted an arbitrary method proposed by the Apple Ireland subsidiaries. That in itself gives rise to a presumption of a special deal, exceptionally advantageous treatment. It is clear that the tax authorities made no assessment in 1991.”

General Court judges’ decision

Today is the second and last day of this hearing with the court five judges to be expected to rule in the coming months. Regardless of the outcome, the losing party is likely to appeal to the EU Court of Justice for final judgment which could take many years. This is a very crucial case as it will change or leave intact the Irish regime to protect and be a tax heaven for tech multinationals. That is also why Ireland has already spent 7,1 million euros in mostly legal fees and is expected to pay much more as it may take a decade till the final verdict.

All in all, it doesn’t matter whether Apple is the largest tax payer in the world, what matters is whether the US tech giant and its peers are taking advantage of EU special tax regimes or paying their rightful tax burden.

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