Apple released its grounds for appealing the €13 billion (US$14 billion) tax bill from the European Commission earlier this week, arguing that the Commission’s arm’s-length test did not comply with EU laws for determining state aid in tax assessments.
The controversial state aid case has not only caused a headache for Apple itself, but also put the US, Ireland and the European Commission (EC) up against each other. When the EC decided that Apple had received illegal state aid and should pay €13 billion in back taxes, Apple and Ireland both said the tech giant had not received any tax benefits. Meanwhile, the US Treasury Department released a white paper where it implied that the EU is collecting taxes that rightfully belong to the US.
Apple immediately said it would appeal the EC’s decision and released its grounds of appeal on 20 February. While some of the arguments overlap with Ireland’s, Apple also had some interesting arguments of its own.
Firstly, it said the Commission erred in its interpretation of Irish law, while also alleging that the arm’s-length principle “does not operate as the test for state aid in tax assessments” under Article 107 of the Treaty of the Functioning of the EU.
In addition, the appeal document said that Apple attributed its profits to the US for the first time. “Even if the arm’s-length principle were legally relevant (which Ireland does not accept) the Commission has failed to apply it consistently or to examine the overall situation of the Apple group,” it said.
The company’s appeal goes further to discuss what the correct transfer pricing should have been – alleging that “the Commission’s subsidiary line of reasoning is erroneous”, “the Commission’s alternative line of reasoning is erroneous” and “the Commission has breached essential procedural requirements”.
Moreover, Apple has claimed that the Commission breached the principles of legal certainty and legitimate expectations by invoking alleged rules of EU law never previously identified. Apple also claimed that the EC did not have the competence to take this decision.
The list of Apple’s main arguments against the Commission’s decision ends with Apple claiming that its fundamental human rights were breached, as well as stating that the ruling was unfair and not impartial.
Douglas Stransky, head of international tax at Sullivan & Worcester, that the arguments put forward by Apple and Ireland are justified because what the EC has done lacks sound reasoning.
“The EC’s allocation of Apple’s profit to its Irish branch generates a result in conflict with economic substance. The Commission’s decision that half the profits of the global Apple group belong in Ireland defies logic,” he told TP Week.
Stransky called the EC’s decision “crazy”, and said it had arrived at this conclusion because it started with the formal result of Apple’s careful tax planning, namely, an enormous booked profit in Ireland. “The Commission then essentially concluded that because this profit could not properly be allocated to Apple’s head office, which existed solely on paper, the profit could be allocated only to Apple’s Irish branch because the Irish branch was the only part of the group with substance. This is a losing case for the EC,” Stransky said.
However, not everyone is on Apple and Ireland’s side. Jim Stewart, associate professor at the TCD School of Business, told the Oireachtas Finance Committee that the Commission’s case was very strong and that it was a mistake to appeal. “Apple and the Irish Government are not likely to lose this case but irrespective of the decision, appealing this case is a mistake and is not in the public interest,” Stewart said.
Apple is seeking a full annulment of the decision, and is demanding its legal fees be reimbursed by the EC.
The Irish Finance Ministry said in an earlier statement on 18 December 2016 that Ireland “does not do deals with taxpayers”, and denied giving Apple any favourable tax treatment. “The full amount of tax was paid in this case and no state aid was provided,” the statement said.
The above article was first published on www.internationaltaxreview.com on 23 February 2017 and has been republished with the approval of the Publisher.