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European Commission accuses EU court of ‘errors’ in Apple case

As part of its appeal of the Apple case, the European Commission is arguing that the European General Court made “several errors of law” over its interpretation of the arm’s-length principle (ALP) in the case.

The European Commission has claimed that the EU General Court “misinterprets” its August 2016 decision that Apple had been granted illegal state aid in Ireland. The European Commission hopes to overturn the General Court judgment and claw back €13 billion ($15.7 billion) in taxes from the US company.

The General Court ruled against the Commission in July 2020 and found that Apple’s transfer pricing (TP) arrangements in Ireland were not illegal state aid. However, the Commission filed an appeal, dated September 25 2020 and published on the court website on February 1 2021.

Apple and the Irish government are not backing down over these new claims. The US technology company stressed that the facts had not changed since the lower court’s decision.

“After a thorough review of the facts and the Commission’s claims, the General Court was clear in their determination that Apple has always abided by the law in Ireland, as we do everywhere we operate,” said Apple in a statement.

The Apple case is a landmark tax dispute because it concerns TP arrangements that used to be commonplace. The US company used a dual structure to route its European sales through Ireland.

The Irish government said that Ireland has “always been clear that, based on Irish law, the correct amount of Irish tax was charged and that Ireland provided no state aid to Apple”. 

“Ireland appealed the Commission decision on that basis and the judgment from the court vindicates this stance,” said an Irish government spokesperson.

The Irish government created its low tax model in the 1980s to secure foreign direct investment. Over the past 40 years, Ireland has welcomed companies such as AppleGoogle and Facebook to its shores. Yet the low-tax jurisdiction has been pressured into dismantling the double Irish structure.

Nevertheless, the European Commission is not going to end its state aid crackdown. The Commission wants to reform corporate tax regimes across the EU and implement a digital tax policy. These issues will define EU fiscal policy for years to come.

Three points of contention

The dispute is over whether the arm’s-length principle was applied correctly and the role of the head offices in Apple’s network of subsidiaries. The Commission has laid out its reasons as to why the General Court is wrong in three key points:

  1. The General Court “misinterprets” the EC decision by concluding that the was state aid case came down to the lack of employees and physical presence in Apple’s head office;
  2. The court’s decision “violates” the separate entity approach and the ALP by “invoking functions performed by Apple Inc” to reject the allocation of intellectual property (IP) to the Irish branches; and
  3. The court decision “violates” the separate entity approach and the ALP by finding that the actions of company directors constitute functions performed by their head offices.

The Commission also argued that the court’s findings did not rely “solely” on the fact that the head offices of Apple Sales International (ASI) and Apple Operations Europe (AOE) had no employees or physical presence. This ignores the role of those offices in the US group and particularly whether they performed functions that justified the allocation of Apple’s intellectual property (IP).

“The General Court’s failure to properly consider the structure and content of the decision and the explanations in the Commission’s written submissions on the functions performed by the head offices and the Irish branches is a breach of procedure,” said the Commission in its filing.

Furthermore, the European Commission reiterated that the functions performed by Apple Inc are “irrelevant” to the allocation of profits within ASI and AOE. The Commission argued that the court’s decision was “a breach of procedure” on this issue.

The Commission also claimed that the General Court’s view of the functions played by ASI and AOE directors relied on “inadmissible evidence”. As such, the Court of Justice of the European Union (CJEU) will have to decide whether the General Court’s judgment was made in “error”. If the CJEU agrees with the Commission’s arguments, Apple will pay the price.

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