The Hard Facts of the Apple Case

Sep 23, 2019

The Sunday Business Post, 22 September 2019, A veritable totem of the British dislike for the EU, it is relatively easy to get the attention of the European Courts in Luxembourg. 


But the Court building itself is not an easy place to get into.  There are separate entrances for journalists, staff members, lawyers and, at the extreme end of the building amid the roadworks, there is a small structure designed to welcome visitors to the courtrooms.  Beyond that, on the day I attended the Apple State Aid case, a stand had been set up within the concourse to promote environmentally friendly travel.  With absolutely no hint of irony, the gift for everyone who expressed interest in the stand was an apple.


By contrast there was no shortage of irony within the court chamber itself.  The EU Commission’s case is that tax arrangements for Apple companies operating in Ireland through branches constituted State Aid, because not enough tax was charged.  This, they argue, has the same effect as if the Irish Government had selectively provided a grant to the company.


Under European jurisprudence, not only can the parties directly concerned plead their case, but others may also be permitted to join the proceedings and make their points formally to the five judge court.  On the side of the EU Commission, the Polish weighed in to point out how unfair competition via the tax system not only distorted the market but diluted the tax take in other EU member states.  Also on the side of the EU Commission, the European Free Trade Association (representing Iceland, Liechtenstein, Norway, and Switzerland) offered strong criticism of what they claimed was a la carte taxation by Ireland. 


For Ireland, Luxembourg presented itself as an ally.  That country’s barrister pointed out to the court that the Commission was not challenging Ireland's tax laws but rather their method of application.  This is a perspective perhaps informed by Luxembourg’s own recent travails under State Aid and tax.  While the scale of the Commission’s challenge to Ireland, €13 billion plus interest, is unique, the type of challenge itself is not.


These interventions seemed almost like afterthoughts, made as they were following the presentation of the main contentions of the parties directly involved – the Commission, Ireland and the company itself.  At the risk of grossly oversimplifying the arguments which were made, the Irish position seems to be that the Commission doesn't understand tax law particularly as it applies to cross border trading arrangements.  The Commission's position seems to be that it can't understand how the Irish Revenue could apply the law as they did.  Apple's position seems to be that the Commission does not really understand their business model. 


It is from these pleadings supported by voluminous amounts of material that the court must finalise their deliberations.  I gather that the judges have particular expertise in competition law rather than tax law.  They will need all their experience, not just because of the vast sums of money at issue in the case but also because many of the strands of the reasoning from all the parties, as teased out in the spoken depositions and their own questioning, ring true. 


A fundamental aspect of the Irish argument that Revenue can neither raise nor forgive taxes, unless as provided under Irish law, is absolutely correct.  The strength of that argument is somewhat undermined by a scarcity of documents from the early 1990s when consideration was first being given to the proper amounts chargeable to Irish tax from the profits of branches of Apple companies.  The Court also heard from the Apple side that tax on the profits which gave rise to the €13 billion in tax allegedly uncollected by Ireland is now being collected by the US in stage payments in accordance with the rules of the US Tax Cuts and Jobs Act of 2017.  Nobody went so far as to suggest that as everything is being taxed correctly, there is really nothing to see here and we should all move on. 


The outcome of the case is uncertain, and may even be subject to appeal, but nevertheless the process itself has unearthed some hard facts about the international environment in which we operate.  One is that the Commission will continue its crusade against what it sees as the use of tax policy as a proxy for State Aid.  The “tax lady” (as US President Trump dubbed her) Margrethe Vestager, will likely continue her role as Competition Commissioner in the new EU commission taking office in November. 


The world has indeed moved on since the Commission’s issues with Irish tax and State Aid came to the fore some four years ago.  The case predates the US Tax Cuts and Jobs Act, Brexit, the successes of the OECD projects to curb multinational tax planning and the EU’s own Anti-Tax Avoidance Directive. 


The impact of these changes are real, and one outcome has been a boost to the amount of Corporation Tax this country collects.  That might not have happened unless it was clear, particularly to outside investors, that if this country formulated a tax policy, it would stick with it and with the civil servants who implement it.  That is the other hard fact this case has unearthed.  It’s an approach which could well find Ireland in the courts again in the future.


Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland