An advisor to the European Union’s highest court said Thursday that legal errors were made when the EU General Court ruled in favor of Apple over a 13 billion euro ($14 billion) tax bill in Ireland.
Advocate General Giovanni Pitruzzella stated that the case should be referred back to the lower court for review, in a potential setback for the tech giant.
The case stems from EU antitrust chief Margrethe Vestager’s 2016 ruling that Apple received illegal state aid from Ireland in the form of preferential tax deals for over two decades, allowing it to pay an effective tax rate as low as 0.005% in 2014.
Apple and Ireland have appealed the European Commission’s order for Apple to repay the taxes, though Ireland has been holding the funds in escrow.
Background of the Apple-Ireland Tax Case
- The European Commission in 2016 ruled that Ireland gave Apple unfair and illegal state aid in the form of sweetheart tax deals.
- This enabled Apple to pay ultra-low tax rates on its European profits channeled through Ireland, as low as 0.005% in 2014.
- The Commission ordered Apple to repay 13 billion euros in back taxes. Both Apple and Ireland appealed the decision.
- In 2020, the EU General Court sided with Apple and Ireland in overturning the Commission’s tax order.
- The Commission then appealed to the EU Court of Justice, leading to Thursday’s opinion calling for the case to be re-examined.
Advocate General Finds Fault with Lower Court’s Decision
Advocate General Pitruzzella stated in his non-binding opinion that the General Court’s 2020 judgment should be set aside. He found several legal errors in the lower court’s assessment:
- It failed to properly assess methodological errors identified by the Commission in the original Irish tax rulings provided to Apple.
- It did not consider the substance and consequences of these errors in the favorable tax treatment granted to Apple.
- There were other errors in law made by the General Court in overturning the Commission’s decision.
Pitruzzella stated that due to these assessments being incorrectly carried out, the case should go back before the General Court for re-examination.
Impact of the Opinion on Apple’s Tax Bill
The opinion, while not legally binding, is often followed by the Court of Justice in making its final rulings. If the court does overturn the General Court’s decision, it would pave the way for the EU to recoup the full 13 billion euros from Apple.
While Apple is likely to continue its legal challenge, Ireland could potentially gain access to the contested taxes it has been holding in escrow. However, the Irish government maintains it provided no illegal state aid to Apple. Other EU member states are also expected to claim part of the back taxes if released.
An Apple spokesperson reiterated their view that the company received no selective advantage or state aid from Ireland, and that the General Court’s initial ruling should stand. But the advocate general’s strong rebuke of the lower court’s assessment indicates the tax case could drag on.
Vestager’s Record in Court Challenges
The Apple tax ruling is a signature case in EU competition chief Margrethe Vestager’s crackdown on preferential tax deals offered by EU countries to multinationals. Her record in defending these cases in court has been mixed so far:
- In September 2022, the General Court upheld her decision against a Belgian tax scheme benefiting 55 multinationals. This was her most significant legal win to date.
- But she has lost court challenges brought by Starbucks, Amazon and Fiat Chrysler over their tax arrangements in various EU countries.
The advocate general’s opinion shows Vestager still has a fight on her hands to defend and enforce her pro-competition tax rulings. The final ruling by the Court of Justice in the coming months will have major implications.
Ongoing EU Tax Investigations
While the Apple case proceeds through appeals, the EU Commission continues to actively investigate other tax arrangements of major companies:
- IKEA is being probed over its Dutch tax rulings.
- Nike’s tax deal with the Netherlands is under scrutiny.
- Finnish company Huhtamaki’s tax rulings in Luxembourg are being investigated.
These expanded probes by Vestager’s office signal the EU remains committed to ensuring fair tax competition by multinationals operating across its single market.
The advocate general’s strong opinion calls into question the 2020 court decision favoring Apple and presents hurdles for the company in defending its win.
The Court of Justice’s final ruling in the coming months could force lower courts to re-examine the case and Apple’s massive potential tax bill.
The saga represents an important test of the EU’s powers to crack down on preferential tax arrangements doled out to multinational corporations.