European Union: EC Rules That Apple Received Illegal State Aid Under Irish Tax Rulings - Orders Recovery Of Up To €13 Billion

On August 30, 2016, the European Commission announced its finding that tax rulings obtained by two Irish subsidiaries of Apple constitute illegal State aid. The Commission concluded that Apple must pay Ireland an amount equal to the alleged tax benefits, plus interest, amounting to some €13 billion.

This is the fourth Commission case concerning tax ruling in less than one year. Two other ongoing cases involve tax rulings in Luxembourg, and the Commission has announced plans to open further investigations. The Commission's initiatives may cast doubt on the validity of a host of past tax rulings obtained by multinational companies from EU Member States, as well as on new or renewed rulings in the future.

A Brief Refresher

In 2013, in response to concerns that certain EU Member States were issuing favorable tax rulings to multinationals in order to attract foreign direct investment in violation of EU competition rules, the Commission launched a number of State aid investigations. It began investigating the tax ruling practices of seven EU Member States, including The Netherlands and Luxembourg, which it then broadened to all 28 EU Member States in 2014. The Apple decision, as well as previous decisions relating to tax rulings in the Netherlands and Luxembourg and a specific Belgian tax scheme, reflects the Commission's critical approach to tax rulings. On various occasions and most recently in a working paper issued on June 3, 2016, the Commission has announced plans to pursue further investigations, focusing on cases where there is a "manifest breach" of the so-called arm's-length principle.

Various appeals have been brought by the Member States and/or the affected companies against the three decisions from the past year, and, more broadly, the use of State aid tools in this field has faced criticism. In particular, the Commission's perceived bias against U.S.-based multinationals has drawn a special criticism from the U.S. government, academics, and taxpayers. Last week, the U.S. Treasury even issued a comprehensive White Paper criticizing the EU's approach.

Multinationals navigating these waters will need sound and integrated advice on both tax and State aid implications.

The Apple Case

The formal decision has not yet been published, and the full reasoning of the Commission therefore is not yet available. From the initial decision opening the investigation, however, we know that the Commission attacked the so-called "Double Irish" structure, which allegedly allowed Apple to shift profits from high-tax to low-tax jurisdictions. But this, in and of itself, was not a State aid. The Commission had preliminarily concluded that the tax ruling on the pricing of transactions between the various Apple affiliates (and hence how much income remained subject to tax in Ireland) was not based on an objective transfer pricing report, but was rather devised to fit the results of Apple's negotiations with the Irish tax authorities. In addition, the long duration of the agreement under the tax ruling (15 years), without review, appeared highly questionable to the Commission.

The Commission's main argument is that Apple received a selective advantage as compared to domestic companies because the transfer pricing accepted in the tax ruling did not correspond to an "arm's-length" result that—according to the EU—would be the market terms that a domestic company would have to pay. Significantly, the Commission's arm's-length principle does not itself correspond to the OECD principles nor to any transfer pricing principle enshrined in Irish law. Rather, it is a sui generis EU law principle that the Commission derives from Article 107 of the Treaty, i.e., the provision prohibiting State aid.

The amount to be recovered from Apple by Ireland is not precisely set forth in the decision, but it is clear that it will be the highest amount ever to be recovered under EU State aid law. It should be noted, however, that the Commission, in its press release, indicates a new approach in calculating the amount to be recovered.

According to the press release, "The amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the profits recorded by Apple Sales International and Apple Operations Europe for this period. This could be the case if they consider, in view of the information revealed through the Commission's investigation, that Apple's commercial risks, sales and other activities should have been recorded in their jurisdictions. This is because the taxable profits of Apple Sales International in Ireland would be reduced if profits were recorded and taxed in other countries instead of being recorded in Ireland."

This seems to deviate from prior decision practice and will also likely lead to some practical problems, given that the Member State is generally required to order the repayment of the advantage within four months. It remains unclear how Ireland could take into account taxation by other countries within that period of time.

As with the other tax ruling cases before, this case is likely to be appealed both by the Member State concerned—Ireland—and by the alleged aid beneficiary. The eventual court action will likely revolve around the question of whether the Commission's approach to compare multinational companies to domestic companies is correct or if the Commission should have compared the treatment of Apple with the treatment of other multinational companies in Ireland.

Decisions in Three Other Investigations

This new ruling highlights the Commission's continued interest and resolve to seek repayment of what it perceives to be illegal State aid in tax ruling cases. The Commission has already closed its investigations into two other tax rulings granted by the Netherlands and Luxembourg and the Belgian "Excess Profit" scheme and has ordered repayments in each of these cases.

  •   As one example, in a decision from October 2015, the Commission primarily objected to Fiat's remuneration of intra-group services, as endorsed by a Luxembourg tax ruling. Fiat Finance and Trade ("FFT") provides intra-group loans and other services to other group companies, and its remuneration is determined as return on capital. However, the Commission concluded that FFT's capital base was artificially lowered, and its rate of return fell below market benchmarks, which deflated its tax base. The Commission again ordered an amount of about €20–30 million to be repaid. Fiat and Luxembourg separately appealed the decision in December 2015, which appeals are currently pending.
  •  In another example, in the Belgian Excess Profit case, the Commission challenged a Belgian tax regime that allows multinational corporations to reduce their tax base by an amount of what are allegedly "excess profits." The system is based on the premise that multinationals may derive "excess profits" resulting from being part of a group of companies (due to synergies, economies of scale, etc.) as compared to profits of stand-alone companies. In some cases, the provision allowed companies—based on company-specific tax rulings—to reduce their tax base by as much as 50–90 percent. The Commission's January 2016 decision ordered the suspension of the tax scheme and ordered the recovery of some €850 million (Belgian tax authorities are to determine the exact amount) from more than 30 multinationals. Several appeals against the decision are currently pending.

Other Ongoing Investigations

The Commission is still pursuing its investigation in two cases in Luxembourg.

  •  In one case, the Commission challenges a Luxembourg tax ruling, which endorsed a practice whereby the Luxembourg entity reporting much of the company's European profits pays a "tax deductible royalty to a limited liability partnership established in Luxembourg but which is not subject to corporate taxation in Luxembourg." In addition, the Commission criticizes the fact that the ruling was granted in the absence of a transfer pricing report to support it. Furthermore, the ruling request was assessed and granted in only 11 working days and made no reference to any of the OECD-accepted transfer pricing methods, raising the Commission's doubts as to how substantive and solid the analysis was before the ruling was granted.
  •   In the other case, the Commission alleges that rulings enabled double non-taxation of the company's profits in Luxembourg and the United States. Under the tax arrangement, the company's Luxembourg head office internally transferred revenues to a U.S. branch. Under Luxembourg law, the U.S. branch constitutes a "permanent establishment," and profits should be taxable in the United States. Under U.S. law, however, the U.S. branch does not constitute a "permanent establishment" and should therefore be taxable in Luxembourg. As a result, profits were not taxed in either jurisdiction, as validated by the challenged Luxembourg tax ruling.

Important Implications for Multinational Companies

The Commission has repeatedly stated its resolve to pursue tax rulings based on State aid rules. The recently published Commission Notice on the notion of State aid (a blueprint of the Commission's interpretation of State aid rules) expressly mentions tax rulings as a methodology for granting State aid, and in particular where a tax administration applies more "favorable" treatment over other taxpayers in issuing such tax ruling.

In a Working Paper dated June 3, 2016, the Commission also indicated that it may open additional investigations if it finds that other tax rulings may grant State aid. In particular, the Commission would focus on cases where there is a "manifest breach" of the arm's-length principle. Various public statements by Commission officials over the last several months confirm this.

These cases, and the anticipated judgments of the European Court of Justice ("ECJ"), will have important implications for multinational companies and even for the tax competence of the European Member States. If the ECJ upholds the Commission's decisions, this will likely significantly affect all other multinational companies benefiting from tax rulings issued by EU Member States. In addition, it would then appear that the Commission could reserve the right to scrutinize the application of all national tax rules to multinational companies, in the same way as in these tax ruling cases.

Further background on the EU tax ruling investigations and their implications for multinational companies can be found in the related " European Commission Tax Ruling Investigations: Frequently Asked Questions."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions