The European Commission adopts a decision that the Irish government granted to Apple 13 billion of illegal state aid

On 30 August 2016, the European Commission (“Commission”) adopted a decision that the Irish government granted Apple €13 billion of illegal state aid through two tax rulings and ordered it to recover the aid (plus interest). 

The tax rulings under scrutiny endorsed an internal allocation of profits within the Apple group, which resulted in the vast majority of profits not being subject to corporate tax in Ireland. The Commission considers that there was no factual or economic justification for splitting the profits in this way, and has determined that the two rulings in question artificially lowered Apple’s tax burden since 1991, giving Apple an unfair advantage, in breach of the EU state aid rules. 

The Commission’s decision has generated considerable controversy and criticism in the US, with the US Treasury commenting that the Commission is applying “new legal theory…retroactively” however the Commission has denied this, stating that under long standing EU state aid rules, “national tax authorities cannot give tax benefits to selected companies that are not available to others”. The controversy looks set to continue, and it appears likely that both Apple and the Irish government will appeal the Commission’s ruling.

Apple is not the only company to face Commission enforcement action under the state aid rules in relation to its tax affairs. The Commission is reportedly investigating more than a thousand tax rulings in a number of Member States, and has concluded cases concerning Fiat, Starbucks as well as most recently Apple, whilst investigations regarding Amazon and McDonald’s are continuing. The Commission has stated that companies “generating and recording their profits in an EU country should pay taxes in line with national tax laws” and therefore we can expect the Commission to remain active in this area.

Latest developments are another clear reminder of the significant impact of alleged breach of EU law. Please do not hesitate to speak with your usual contact at Stevens & Bolton LLP, if you wish to discuss any aspect of EU law that may affect your business.

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