In a landmark ruling, the General Court of the European Union has annulled the 2016 adoption of a decision taken by the Commission regarding Irish tax rulings granted in favour of Apple. The Court concluded that the Commission failed to prove, to the requisite legal standard, that the tax rulings granted by the Irish tax authorities to Apple constituted State Aid for the purposes of Article 107(1) of the Treaty of the Functioning of the European Union (TFEU).
In 2016, the Commission adopted its decision ((EU) 2017/1283) on State Aid concerning two tax rulings issued by the Irish Revenue in 1991 and 2007 in favour of Apple Sales International and Apple Operations Europe, companies incorporated – but not tax resident – in Ireland. The tax rulings endorsed methods used by the companies in order to determine their chargeable profits in Ireland, relating to the trading activities of the Companies’ respective Irish branches. The 2007 ruling, which replaced the 1991 ruling, remained in force until 2014, wen Apple’s new business structure was implemented in Ireland.
The Commission’s 2016 decision considered that the tax rulings constituted State Aid unlawfully granted by Ireland to Apple. Consequently, the Commission demanded the recovery of the aid in question, concluding that the value of the said state aid totalled up to 13 billion Euro in unlawful tax advantages. This decision was contested at the General Court by both Ireland (Case T-778/16) and Apple (Case T-892/16).
According to the General Court, the Commission – whilst correctly utilizing OECD tools in order to assess whether the level of chargeable profits endorsed by the Irish Revenue corresponds to that which would have been obtained under market conditions – was wrong to declare that Apple had been granted a selective economic advantage and, by extension, State Aid. Specifically, the General Court held that the Commission incorrectly concluded, in its primary line of reasoning, that the Irish Revenue had granted Apple an advantage as a result of not having allocated Apple Group intellectual property licences held by the companies in question, and, consequently, all of the companies’ trading income, obtained from the Apple Group’s sales outside North and South America, to their Irish branches. The Court noted that the Commission should have shown that such income represented the value of the activities actually carried out by the Irish branches themselves. This in view of, inter alia, the activities and functions actually performed by the Irish branches, on the one hand, and the strategic decisions taken and implemented outside of those branches, on the other.
The General Court further considered that the Commission failed to prove, in its alternative line of reasoning, that the contested tax rulings were the result of discretion exercised by the Irish Revenue, and that accordingly, the companies had been granted a selective advantage.
The Court therefore annulled the Commission’s decision on the basis that the Commission did not succeed in showing to the requisite legal standard that there was an advantage for the purposes of Article 107(1) TFEU.
An appeal, limited to points of law only, may be brought before the CJEU against the decision of the General Court within two months and ten days of notification of the decision. This decision nevertheless appears to throw some cold water on the European Commission zealous campaign against low-tax jurisdictions and the international tax planning industry.