EU Court to Decide Apple’s €13bn Tax Battle

The European Union’s highest court is set to make a landmark ruling on whether the European Commission’s demand for Apple to repay €13 billion in alleged illegal tax benefits from Ireland was justified. The decision, expected from the European Court of Justice (ECJ) on Tuesday, could have significant consequences for the future of tax arrangements between EU member states and large multinational corporations, according to The Guardian.

This legal battle dates back to 2016 when Margrethe Vestager, the EU’s competition chief, ruled that Apple had received unfair tax breaks from Ireland, allowing the company to pay an effective tax rate as low as 0.005% in 2014. Vestager ordered Ireland to recover €13 billion plus interest, the largest-ever tax recovery in the EU. However, in 2020, the European General Court overturned this decision, siding with Apple and the Irish government, stating that the Commission had failed to prove Apple gained a competitive advantage. Vestager appealed, and now the ECJ is poised to issue its final judgment on the matter.

Per The Guardian, the original 2020 decision was a significant setback for Vestager, who built her reputation by challenging multinational giants like Amazon, Starbucks, and Fiat over their tax practices. In 2022, the EU lost another high-profile case when the court ruled that Fiat Chrysler did not have to repay €30 million in taxes to Luxembourg. Despite these defeats, Vestager remained firm, stating in 2023 that these rulings had brought needed “clarification” but that she would not retreat from tackling selective tax benefits that distort the EU’s single market.

Related: EU Court to Deliver Verdict on Apple-Ireland Tax Appeal this Month

One of Vestager’s notable losses came when the ECJ overturned her order requiring Amazon to repay €250 million to Luxembourg, further underscoring the challenges the EU faces in regulating corporate tax arrangements. However, there was a potential boost for the Commission last year when a senior lawyer at the ECJ, advocate-general Giovanni Pitruzzella, recommended that the 2020 Apple appeal be annulled and sent back to the lower court for reassessment. Though his opinion is non-binding, the ECJ typically follows the guidance of its advocates general.

The ECJ’s ruling could either direct the General Court to revisit the case or provide a final judgment that ends the long-running legal dispute. Regardless of the outcome, the decision is expected to have profound implications for how EU countries offer tax incentives to attract multinational companies. According to The Guardian, these so-called “sweetheart” tax deals have long been a source of controversy, with critics arguing they allow corporations to avoid fair tax contributions.

Fiona Scott Morton, an economics professor at Yale University and now a consultant at the Bruegel think tank in Brussels, weighed in on the broader implications of the case. According to The Guardian, she argued that tax competition among EU states has distorted the internal market, urging governments to compete based on public services rather than low taxes. “What you’d like is for cities and member states to compete for corporations on the basis of schools, parks, public transit, and museums,” Morton said, highlighting the need for a shift away from tax incentives that undermine public financing.

If the European Commission loses its case, Morton suggested that new legislation might be needed to prevent a “race to the bottom” on corporate taxation across the EU. As she noted, “If society wants to control that situation, then they have to pass a law.”

Source: The Guardian