LAST UPDATE | 10 Sep
WELL, IT’S THE end of the line. Possibly. Maybe.
Ireland’s showdown with the European Commission over €13 billion in alleged unpaid taxes has now dragged on for eight years.
The European Commission first announced on 30 August 2016 its finding that Ireland gave Apple illegal tax advantages. Ireland almost immediately said that it would appeal.
The case has been back and forth in European courts since – but the European Court of Justice is to issue a binding ruling today.
While there is still the chance of further appeals, the ruling could finally mark an endpoint.
With that in mind, here’s a recap on what happened and why.
Just over a decade ago, the European Commission launched an investigation into Apple’s tax dealings in Ireland.
The US multinational has its European headquarters in Ireland and books most of its earnings outside of the US in its Irish entities.
In August 2016, the Commission issued its findings. It claimed that the Irish state gave Apple illegal benefits which lowered the tax the company paid in Ireland.
It found the value of these benefits was €13 billion covering the years 2003 – 2014, which it ordered Apple to repay to the Irish state.
The Irish government almost immediately announced it would appeal.
This was because the European Commission claimed the Irish state gave Apple a special deal to pay lower taxes. If true, this is obviously not something which would have gone down well with other companies which didn’t get a similar deal.
The Irish government feared the claim could knock the confidence of businesses in Ireland’s tax regime.
It also said that the Commission’s action was wrongly interfering in national tax policy and “an intrusion into Irish sovereignty”.
Apple, unsurprisingly, joined the Irish government’s appeal.
Apple put €13 billion into an “escrow account” managed by the Irish state to keep it safe during the legal proceedings, where the money has stayed since.
The European Commission’s case focused on a few corporate entities which Apple established in Ireland.
Essentially, the company was routing money which was made on product sales across Europe through these Irish entities.
Due to a quirk in Irish law, these entities had head offices which were considered to be “stateless”. This meant that most of the profits earned by Apple’s Irish entities were not technically liable for tax in any jurisdiction. (Ireland has since got rid of these ‘stateless’ corporate entities).
It is estimated that between 2003 and 2014, the Apple Irish entities under investigation by the European Commission recorded profits of just over €110 billion.
The €13 billion which the Commission wants Apple to pay is what it says the company would have paid had Ireland applied its normal 12.5% corporate tax rate.
The European Commission, multiple journalists, researchers and analysts have all said that this arrangement allowed Apple to (at least temporarily) shield large chunks of its profits from tax.
For its part, Apple has claimed that this arrangement “did not reduce our tax payments in any country”.
It seems fanciful that Apple would go to the trouble of creating such an elaborate corporate structure if it had no effect on its operations.
The US tax code is strange in that American multinationals pay corporate tax on their foreign earnings if they move this money back to the US. If the money is held in corporate entities outside of the US, it stays untaxed, but then often cannot be effectively used by the company.
This led many multinational companies to use complicated tax structures to store their foreign profits in corporate entities paying zero tax.
Multinationals then lobbied the US to cut its corporate tax rate, saying they would move their foreign earnings back to the US if they could pay less tax. In return, the US would get the benefit of billions of corporate investments.
This is one of the main reasons why the US lowered its corporate tax rate from 35% to 21% in 2017.
What has all of this got to do with Apple and Ireland, you may ask?
It’s because this is one of Apple’s arguments as to why the European Commission’s case is wrong.
The company has said that the tax should be paid in the US, rather than in Ireland. This is because it is in the US where the firm comes up with the ideas for its products (its intellectual property), which then generate most of the business’s value.
In fact, last year Apple claimed it has already paid €20 billion in tax to the US on the €110 billion or so of profits which are under dispute.
Essentially, it has said that if it is forced to pay €13 billion to Ireland, it will have paid tax on the profits twice.
The other key part of the case is that the European Commission claims Apple got a special ‘sweetheart deal’ from the Irish state which considerably lowered its tax bill.
This is based on two “rulings” issued by Revenue regarding how Apple allocated profits to its Irish operations.
The Irish government argues that these rulings are given out as a matter of practise by tax officials to companies who want to make sure their corporate structures comply with the law.
The European Commission has claimed that these two rulings allowed Apple to operate in a way which was not open to other businesses, letting it pay less than 1% tax on its Irish earnings.
Since the European Commission decision, the case has been making its way through various European courts.
In 2020, Apple and Ireland arrived at what looked like a major win when the lower court of the European Court of Justice ruled that the European Commission’s findings were legally flawed.
However, the Advocate General, a key legal advisor to the European Court of Justice, later said that this lower court decision should be overturned.
Now, the case is being revisited by the top court of the European Court of Justice, which is due to issue its findings this morning.
While many commentators had previously been relatively confident in calling the case in Apple’s favour, the Advocate General’s decision has made the final ruling harder to predict.
The verdict is being eagerly awaited in both Ireland and abroad.
While there are arguments about how much of an effect the case could have on Irish tax policy, the real long term impact is more likely to be over how Europe taxes American multinationals.
The Commission’s case against Apple was one of several it took in an effort to crack down on profit shifting by large US companies. The Commission has also taken cases against the likes of Starbucks and Amazon, with many countries feeling that these firms are avoiding paying a fair share of tax in Europe.
If Apple wins, many of these cases could be at risk.
But come what may this morning, we should all keep in mind who will likely be the true winners of this long-running saga.
Not the Irish public, which has had to endure years of confusing reporting about a potential €13 billion windfall which the state cannot use.
Or the Irish politicians who have been forced to go out to bat for one of the world’s largest multinationals.
Even if it is successful in court, it’s unlikely to even be Apple, which has suffered serious reputational damage.
It will be the lawyers, who have spent years and years arguing endlessly over the details of tax law. But today could be their final payday.
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