The European Court of Justice has ordered Apple to pay back 13 billion euros ($14.4 billion) in taxes to Ireland. Two of its subsidiaries illegally received tax benefits between 1991 and 2014, as these benefits were not available to other companies.
Ireland issued tax rulings favourable to Apple Sales International and Apple Operations Europe in 1991 and 2007 respectively. Both companies were incorporated in Ireland but were not tax residents. The rulings allowed them to calculate their taxable profits in Ireland based solely on the activities of their Irish branches.
However, because their headquarters were outside Ireland and decisions relating to intellectual property licensing were made in the United States, the rulings meant that profits generated by licensing the companies' intellectual property were excluded from their tax base.
Other Irish companies were unable to benefit from the same rulings. Apple paid a corporate tax rate of 0.0005% in 2014, while Ireland's general tax rate has been 12.5% since 2003.
“Ireland granted Apple unlawful aid which Ireland is obliged to recover,” the judges said in a press release.
Vestager and Apple react to the news
European Competition Commissioner Margrethe Vestager ordered Apple to repay taxes linked to its intellectual property licences in 2016, saying the tax rulings were illegal. At the time, CEO Tim Cook called the claims “total political nonsense”.
However, the order was overturned by the General Court of the European Union in 2020, a court below the ECJ, because “the Commission had not sufficiently demonstrated that those companies enjoyed a selective advantage.”
SEE: Apple will allow EU users to remove pre-installed apps on iOS 18, complying with the Digital Markets Act
On Tuesday, the CJEU overturned the General Court's ruling, saying the Commission had sufficiently demonstrated to the General Court that an advantage had been granted to Apple and that it had not misinterpreted Irish law. The CJEU also said the General Court had wrongly upheld claims by Ireland, ASI and AOE in relation to the Commission's assessment.
Following the news of the long-awaited ruling of the CJEU, Vestager posted on X: “Today is a great victory for European citizens and tax justice.”
Speaking at a press conference after the ruling, he added: “These tax rulings attributed the bulk of the taxable profits of two Irish Apple subsidiaries to a stateless headquarters. These headquarters existed only on paper – there were no desks, no chairs, no activities. The profits were therefore not subject to tax anywhere.”
Apple, which says it paid $577 million in taxes between 2003 and 2014 — 12.5% of the profits it generated in Ireland — said there had “never been a special agreement” with the country in a statement to the BBC.
He added: “The European Commission is trying to change the rules retroactively and ignoring that, as required by international tax law, our income was already subject to tax in the US. We are disappointed with today’s decision as the General Court previously reviewed the facts and categorically overturned this case.”
The ruling also put a stop to the Sept. 9 unveiling of Apple's new technology lineup, which includes the iPhone 16, Apple Watch Series 10 and AirPods 4.
SEE: iPhone 16 Cheat Sheet: Key Features, Price, Tricks, and More
The decision of the CJEU is described as “dramatic”
The Irish government has one of the lowest corporate tax rates in the EU (12.5%), making it a popular choice for European headquarters for tech companies. Apple's base for Europe, the Middle East and Africa is in Cork, while Meta's is in Dublin.
Ireland appealed the European Commission’s 2016 decision, arguing that there were “no intellectual property-related activities in Ireland,” so the profits were not attributable to Apple’s Irish branches. It also claimed that its treatment of intellectual property taxation is in line with other members of the Organization for Economic Cooperation and Development, according to Reuters.
Alex Haffner, competition partner at Fladgate, told TechRepublic via email: “The ECJ's decision is dramatic, not least because it overturns the findings of the EU General Court, which had upheld Apple's appeal against the Commission's findings that it had received unlawful state aid through tax advantages granted by the Irish government.
“In essence, the CJEU has found that the General Court took too literal an approach when it decided that the Commission had failed to demonstrate to the required standard that Apple’s non-US revenues should be attributed to Ireland and at an appropriate level of tax. Instead, the CJEU was prepared to examine the substance of the situation and whether, overall, Apple was receiving more favourable treatment than it should have received from the Irish government.
“From a financial perspective, Apple will have to give up €13 billion that has been in escrow pending the outcome of the case. But perhaps more relevant is the sense that, once again, EU authorities and courts are ready to flex their (collective) muscles to put Big Tech in its place when necessary.”
On June 24, Apple became the first tech giant to be formally charged by the European Commission for violating the Digital Markets Act.
The Commission found that Apple has three sets of commerce rules that ultimately prevent iOS app developers from directing their users to third-party purchasing options. This contradicts the DMA, which states that developers should be able to direct their customers to purchasing options outside the App Store easily and free of charge.
In January, Apple took a number of steps to comply with the DMA, including changing its payment system for app sellers in the EU and relinquishing the control its App Store has over the distribution of iOS apps in the EU. It also began requiring iOS users in the EU to select their preferred browser instead of Safari. However, in March it was fined €1.84 billion for imposing anti-gating provisions on music streaming apps.
The CJEU has also rejected Google's appeal against an antitrust fine of 2.42 billion euros
Apple was not the only tech giant in the CJEU's crosshairs on Tuesday: it also upheld a €2.42 billion antitrust fine imposed on Google's parent company Alphabet, confirming an earlier ruling by the General Court.
The fine was imposed by the European Commission in 2017 after it found that Google had abused its dominant position in online search markets by favouring its own comparison shopping service over its European rivals.
“Google's conduct was discriminatory and did not fall within the scope of competition on the merits,” the ECJ said in the press release.
Vestager called the ruling a “huge victory for digital fairness” in a post on X. Google told the BBC it was disappointed with the decision and had made changes to comply with the Commission in 2017.
Google has faced EU antitrust fines totalling €8.25 billion during Vestager’s tenure as commissioner. A €4 billion fine in 2018 for forcing Android device makers to pre-install Google Search and Chrome was the largest in EU antitrust history.
The European Commission also told Google that a “mandatory divestment” of part of its advertising technology business would be the only way to address its own competition concerns, after revealing its preliminary opinion that the company had breached EU antitrust rules in March.
The EU is continuing to investigate Google's compliance with the new Digital Markets Act. Regulators claim that Google is promoting its own services above those of third parties in search results and is therefore “controlling access.”
In March, Google temporarily removed some search widgets, such as Google Flights, to allow greater access to individual businesses in response to the DMA coming into effect.
SEE: Microsoft accused of violating EU antitrust rules by bundling Teams with other Office products
But it’s not just the EU that has questioned Google’s ad tech practices. Last week, the UK’s Competition and Markets Authority provisionally ruled that Google’s dominance in the ad tech market is harmful to competitors and could fine it up to 10% of its global annual turnover as a result.
Google is also attempting to appeal a UK court decision in June, which allowed a lawsuit brought by Ad Tech Collective Action LLP to proceed to trial. The online publishers’ collective alleges that Google has abused its dominant position in the digital ad tech sector, causing it to incur £13.6bn in losses.
The U.S. Department of Justice and state attorneys general launched an antitrust investigation in 2020, alleging that Google “has unlawfully used distribution agreements to thwart competition.” That investigation is ongoing.
In August, a federal judge ruled that the tech company has a monopoly on general search and text ad services and has violated antitrust law.
