KEY POINTS

  • Ireland, which has one of the lowest corporate tax rates in the EU, has long sought investments by foreign companies
  • Vestager has spearheaded a campaign to form new tax laws for foreign tech firms like Apple
  • Dublin has always contended that it did not provide any tax breaks or state aid to Apple

The European Union said it will appeal a court ruling from July that found in favor of U.S.-based tech giant Apple (AAPL) in a 13 billion euro ($15 billion) Irish tax case.

The appeal will be heard in the European Court of Justice in Luxembourg.

The complex case involves allegations that the government of EU member Ireland provided unfair tax breaks to Apple. Initially, in 2016, the European Commission – the executive branch of the EU – ordered Apple to cough up 13 billion euros in back taxes that it claimed it owed to the Dublin government covering the period 2004 to 2014.

Although both Ireland and the smartphone maker appealed that ruling, Apple nonetheless paid the tax bill, but placed the money in escrow in 2018 while litigation continued back and forth.

In July of 2020, the European General Court – which is itself a constituent of the Court of Justice of the EU and which hears cases brought against the EU – determined that the European Commission "did not succeed in showing to the requisite legal standard" that Apple had taken advantage of Ireland's taxation laws.

That ruling overturned a prior order that Apple had to pay billions in taxes to Ireland.

"This case is very important because it will set a precedent for cases we want to fight going forward," an EU official told the Financial Times.

The European Commission has long claimed that Ireland illegally permitted Apple to attribute almost of its earnings derived in the EU to an Irish “head office” that did not physically exist, thereby allowing Apple to avoid paying taxes on revenues generated in the EU. Ireland, in fact, serves as Apple's base for its operations in Europe, the Middle East, and Africa.

Ireland, which has one of the lowest corporate tax rates in the EU, has long sought investments by foreign companies. The Dublin government apparently is willing to forego the huge tax bill in order to promote Ireland as an attractive investment target for international firms.

Margrethe Vestager, executive vice president in charge of competition policy at EU, has spearheaded a campaign to form new tax laws for foreign tech firms like Apple that do extensive business in Europe.

“Making sure that all companies, big and small, pay their fair share of tax remains a top priority for the Commission,” Vestager said. “While [EU] member states [like Ireland] have competence in determining their taxation laws …  they must do so in respect of EU law, including state aid rules. If member states give certain multinational companies [like Apple] tax advantages not available to their rivals, this harms fair competition in the European Union in breach of state aid rules.”

Vestager added that: “We need to continue our efforts to put in place the right legislation to address loopholes and ensure transparency. So, there's more work ahead – including to make sure that all businesses, including digital ones, pay their fair share of tax where it is rightfully due.”

Ireland’s Minister for Finance Paschal Donohoe said that while the European Commission’s decision to appeal the ruling was expected, resolution of the case could take years in the courts.

Dublin has always contended that it did not provide any tax breaks or state aid to Apple.

“Ireland has not yet been served with formal notice of the appeal,” Donohoe stated. “When it is received, the [Irish] government will need to take some time to consider, in detail, the legal grounds set out in the appeal and to consult with the government’s legal advisors, in responding to this appeal.”

But Peter Vale, tax partner at accounting and professional services firm Grant Thornton Ireland,  told the Irish Times he was surprised by the European Commission’s latest move, since the prior court ruling was rather comprehensive. He also worried the ongoing case will hurt Ireland’s image.

“From Ireland’s perspective, the appeal by the EU Commission keeps the matter in the spotlight for a few more years, which could have adverse reputational implications for Ireland, regardless of the ultimate outcome,” he said. “The decision by the Commission to appeal creates more uncertainty for investors looking at Ireland or the EU in respect of the EU tax landscape.”

Vale added that he expects the court will  ultimately rule in favor of both Ireland and Apple.

A spokesman for Apple said the company has always adhered to its tax obligations.

“This case has never been about how much tax we pay, rather where we are required to pay it,” the spokesman said in a statement. “We will review the Commission’s appeal when we receive it, however it will not alter the factual conclusions of the general court, which prove that we have always abided by the law in Ireland, as we do everywhere we operate.”

Abishur Prakash is a geopolitical futurist at the Center for Innovating the Future, a strategy consulting firm based in Toronto. He told International Business Times that for the past several years, the European Union has been going after large technology companies, most of whom are American.

“The EU believes that these firms have a monopoly,” he said. “To change this, the EU has focused on several areas. First, it was data, which resulted in the [General Data Protection Regulation]. Now, it’s going after taxes (and talent).

Second, Prakash noted, as the EU launches its own tech war with the U.S., member states like Ireland are dealing with the repercussions.

“The EU wants tax reform, but Ireland, [which] benefits from [its] low [corporate] tax rate, does not,” he explained. “This is why Ireland, and Apple, went after the EU over its tax case. If it had passed, it would have created an EU-wide precedent. And, this would have scared off tech firms who may have used Ireland.”