The European Court of Justice has ordered Apple to pay 13 billion euros ($14.4 billion) in taxes to Ireland, after two of its subsidiaries illegally received tax breaks between 1991 and 2014 because other companies were denied access to them.
Ireland issued tax rulings in favour of Apple Sales International and Apple Operations Europe in 1991 and 2007 respectively. Both companies were incorporated in Ireland but were not tax residents. The rulings allowed them to calculate their taxable profits in the country based solely on the activities of their Irish branches.
However, because their head offices were outside Ireland and IP licensing decisions were made in the US, these rulings meant that profits generated by their IP licensing were not included in their tax base.
Other Irish companies were unable to benefit from the same rulings. Apple paid 0.0005% corporation tax in 2014, while Ireland’s headline tax rate has been 12.5% since 2003.
“Ireland has granted Apple unlawful aid which it must recover,” the judges said in a press release.
Vestager and Apple react to news
European Competition Commissioner Margrethe Vestager ordered Apple to pay taxes related to IP licensing back in 2016 because the tax rulings were illegal. At the time, CEO Tim Cook called the claims “total political crap.”
However, in 2020, the General Court of the European Union (a lower court than the CJEU) annulled this order because “the Commission had not sufficiently established that the undertakings in question enjoyed a selective advantage.”
SEE: Apple to Let EU Users Remove Pre-Installed Apps in iOS 18, Under Digital Markets Act
On Tuesday, the CJEU overturned the CFI ruling. It found that the Commission had sufficiently demonstrated to the CFI that Apple had obtained an advantage and had not misinterpreted Irish law. The CJEU also found that the CFI had wrongly upheld the appeals of Ireland, ASI and AOE concerning the Commission’s assessment.
After receiving news of the long-awaited CJEU ruling, Vestager posted on X: “Today we won a great victory for the citizens of Europe and tax justice.”
At a news conference after the ruling, she added: “These tax rulings attributed the majority of the taxable profits of Apple’s two Irish subsidiaries to what was a stateless head office. Those head offices existed on paper only — no tables, no chairs, no activity. So the profits were not taxed anywhere.”
Apple, which claims to have paid $577 million in tax between 2003 and 2014 – or 12.5% of profits generated in Ireland – said in a statement to the BBC that there was “never a special agreement” with the country.
It added: “The European Commission is attempting to retroactively change the rules and ignore the fact that our income was already subject to tax in the US under international tax law. We are disappointed with today’s decision, as the Court of First Instance previously reviewed the facts and categorically invalidated this case.”
The ruling put an end to Apple’s planned September 9 unveiling of its new line of technology products, which include the iPhone 16, Apple Watch Series 10 and AirPods 4.
SEE: iPhone 16 Cheat Sheet: Key Features, Price, Tricks, and More
CJEU decision called “dramatic”
The Irish government has one of the lowest corporate tax rates in the EU, at 12.5%, making it a popular choice for European tech headquarters. Apple’s Europe, Middle East and Africa headquarters are in Cork, while Meta is in Dublin.
Ireland appealed the European Commission’s 2016 decision, arguing that “there were no intellectual property-related activities in Ireland” so profits were not attributed to Apple’s Irish operations. It also says its approach to taxing intellectual property is in line with other members of the Organisation for Economic Co-operation and Development, according to Reuters.
Alex Haffner, Fladgate’s competition partner, told TechRepublic in an email: “The CJEU’s decision is dramatic, not least because it overturns the findings of the General Court of the European Union on which it was based, which upheld Apple’s appeal against the Commission’s findings that the company had received unlawful state aid in the form of tax benefits granted by the Irish government.
“In essence, the CJEU found that the Court of First Instance had taken too literal an approach when it ruled that the Commission had failed to demonstrate to the required standard that Apple’s non-US revenues should be attributed to Ireland and to an appropriate level of tax. Instead, the CJEU was prepared to look at the merits of the situation and whether, overall, Apple had been treated more favourably by the Irish government than it should have been.”
“From a financial perspective, Apple will now have to give up €13 billion that has been sitting in escrow pending the outcome of the case. But perhaps more importantly, there will be a sense that once again EU authorities and courts are ready to flex their (collective) muscles to bring Big Tech to heel if necessary.”
On June 24, Apple became the first technology giant to be formally accused by the European Commission of violating the Digital Market Act.
The Commission found that Apple has three sets of business rules that ultimately prevent iOS app developers from directing their users to third-party purchase options. This contradicts the DMA, which states that developers should be able to direct their customers to purchase options outside the App Store easily and free of charge.
Apple took a series of steps in January to comply with the DMA, including changing the payment system for app sellers in the EU and removing the control that the App Store has over the distribution of iOS apps in the EU. It also began urging iOS users in the EU to choose their preferred browser over the default Safari. However, in March it was fined €1.84 billion for imposing anti-steering rules on music streaming apps.
The CJEU also dismissed Google’s appeal against an antitrust fine of EUR 2.42 billion.
Apple wasn’t the only tech giant to find itself in the crosshairs of the CJEU on Tuesday. The court also upheld a €2.42 billion fine imposed on Google’s parent company, Alphabet, confirming an earlier judgment by the Court of First Instance.
The European Commission imposed the fine in 2017 after finding that Google was abusing its dominant position in the internet search market by favouring its own price comparison service over European rivals.
“Google’s conduct was discriminatory and outside the scope of competition on merits,” the CJEU said in a press release.
Vestager called the ruling “a major victory for digital justice” in a post on X. Google told the BBC it was disappointed with the decision and that it had made changes to comply with the Commission’s 2017 ruling.
Google has faced EU antitrust fines totalling €8.25 billion during Vestager’s term as commissioner. A €4 billion fine in 2018 for forcing Android device makers to pre-install Google Search and Chrome was the largest ever in EU antitrust fines.
The European Commission also told Google that a “mandatory divestment” of parts of its ad technology business would be the only way to address its own competition concerns, after revealing in March its preliminary view that the company had breached EU antitrust rules.
An EU investigation is underway into how Google is complying with the new Digital Markets Act, with regulators saying it is promoting its own services over third-party services in search results and is therefore “gatekeeping”.
In March, in response to the DMA, Google temporarily removed some of its search widgets, such as Google Flights, to allow individual businesses greater access to them.
SEE: Microsoft accused of violating EU antitrust rules by combining Teams with other Office products
But it’s not just the EU that has a problem with Google’s ad tech practices. Last week, the UK’s Competition and Markets Authority provisionally ruled that Google’s dominance in the ad tech market was harmful to competitors and could therefore fine Google up to 10% of its global annual turnover.
Google is also seeking to appeal a decision by a British court in June that allowed the lawsuit by Ad Tech Collective Action LLP to proceed. The online publisher collective claims that Google has abused its dominant position in the digital advertising technology sector, leading to losses of £13.6 billion.
The U.S. Department of Justice and state attorneys general launched an antitrust investigation in 2020, alleging that Google “illegally used its distribution agreements to thwart competition.” That investigation is still ongoing.
In August, a federal judge ruled that the tech company had a monopoly on general search and text advertising services and violated antitrust law.
