The Power of Perspectives

The Canadian Bar Association

Yves Faguy

Apple's legal challenge to EU's Irish tax decision

December 20 2016 20 December 2016


Apple and the Irish government are challenging the European Commission’s August ruling, published yesterday, ordering Ireland to recoup undue tax breaks to the tune of $13 billion euros. The Commission found that the Irish government had selectively conferred an advantage on the iPhone maker – a measure, it says, that carries the risk of distorting competition and affecting trade between EU member states.

Under the terms of the Treaty on the Functioning of the European Union, the measure amounts to state aid, which is forbidden under the common market’s rules.

Apple has responded by charging that the EU has “retroactively changed the rules, disregarding decades of Irish tax law, U.S. tax law as well as global consensus on tax policy." The Irish government is making the case that tax matters are for each member state to decide.

On that point Jonathan Sheehan hints in an October post that the European Commission may have overreached:

Direct taxation remains within the competence of EU Member States. Member States retain sovereignty over their direct tax affairs as regards the manner and extent to which companies are taxed, subject to compliance with the EU's fundamental freedoms and State Aid law. However, in seeking to re-write Ireland's tax rules and override its transfer pricing rulings, it is contended that the Commission is encroaching into the sovereign Member State competence of taxation.

Support for encroachment by the Commission beyond competition law is also implicit in the Commission's announcement of its decision where it effectively invites other countries to claim some of the unpaid taxes for themselves. The apparent contradiction in the Commission requiring Ireland to tax the total sales profits of the two Apple companies, while acknowledging that the sums may in fact be taxable in other jurisdictions (including the US), is not lost on Ireland. The concept that Ireland would not be judged to have granted illegal State Aid if another jurisdiction had exercised taxing rights over the same profits is, according to the Irish Government, "difficult to understand".

Simon Jack argues that this is just a way to pull other countries in the fight against helping multinationals shelter profits:

Although it will be years before this case is settled, the tax landscape is already changing.

The Commission may end up losing this particular battle but there is progress in the international war against tax avoidance.

The notoriously complex "double Irish" tax structure is being phased out, the OECD's work on preventing profit shifting to low tax areas is being fairly widely adopted and companies are even moving their headquarters to places where they have a real physical business (Mcdonalds from Luxembourg to the UK for example).

Photo licensed under Creative Commons by Håkan Dahlström

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