EU court finding backs member states' special tax deals

Reuters

European General Court on Wednesday ruled that technology giant Apple does not have to pay 13.1 billion euros (US$15 billion) in back taxes and 1.2 billion euros in interest to Ireland, delivering a blow to the bloc’s attempts to crack down tax deals between multinationals and individual member states.

The EU Commission said in 2016 that Apple had an illegal tax deal with Irish authorities that allowed it to pay extremely low rates. But the European General Court said on Wednesday that “the Commission did not succeed in showing to the requisite legal standard that there was an advantage.”

“The Commission was wrong to declare” that Apple “had been granted a selective economic advantage and, by extension, state aid,” said the Luxembourg-based court, which is the second-highest in the EU.

The EU Commission had ordered Apple to pay for gross underpayment of tax on profits across the European bloc from 2003 to 2014. The commission said Apple used two shell companies in Ireland to report its Europe-wide profits at effective rates well under 1 percent.

In many cases, multinationals can pay taxes on the bulk of their revenue across the EU’s 27 member states in the one EU country where they have their regional headquarters.

For Apple and many other big tech companies, that is Ireland. For small EU countries like Ireland, that helps attract international business and even a small amount of tax revenue is helpful for them. The result, however, is that these companies often pay very low tax.

The Irish government welcomed the ruling. “Ireland has always been clear that there was no special treatment provided” to the US company, it said in a statement. “Ireland appealed the Commission Decision on the basis that Ireland granted no state aid and the decision today supports that view.”

Apple CEO Tim Cook has called the EU demand for back taxes “total political crap.”

A blow to the bloc’s executive arm

Reuters

The defeat is especially stinging for EU Competition Commissioner Margrethe Vestager, who has campaigned for years to root out special tax deals. Trump has referred to her as the “tax lady” who “really hates the US.”

The Eurodad network of 49 civil society organizations said that the ruling showed how tough any tax policy remains.

“If we had a proper corporate tax system, we wouldn’t need long court cases to find out whether it is legal for multinational corporations to pay less than 1 percent in taxes,” said Tove Maria Ryding of Eurodad.

Even though taxation remains under the authority of its member states, the EU is seeking to create a level playing field among the 27 nations by making sure special deals including ultra-low tax rates with multinationals are weeded out.

The ruling comes at a time when tax income for EU nations is especially welcome because of the economic recession of the coronavirus. When cash-strapped households are suffering, the EU wants to make sure multinationals making profits on the continent pay their fair share.

The EU Commission was to unveil plans to combat tax fraud only hours after the ruling in Luxembourg.

“In times like these when we are passing a huge economic stimulus packages, we cannot afford to waste a single cent in tax revenue,” said EU legislator Markus Ferber.