What does the European court decision on Apple mean for tax policy in the EU?

Multinationals should be wary of assuming that they can return to business as usual when it comes to minimising their tax bills through complex corporate structuring and aggressive accounting practices, writes Ben Chu

The tech giant will not have to pay Ireland €13bn in back taxes after winning an appeal (Getty)

In 2016, when the European Commission ruled that the Irish government had granted illegal state aid to Apple and demanded the US technology giant pay €13bn (£11.9bn) in back taxes to Dublin, the move was hailed as a significant moment in the struggle to bring tax-dodging multinationals to heel.

It was the culmination of a three-year investigation by the EU’s competition commissioner Margrethe Vestager, and she had ignored considerable pressure from Washington – including threats of US retaliation – to drop the case.

So it’s no surprise that Wednesday’s verdict by the European judges on the General Court of the European Union, overturning that ruling in Apple’s favour, is being seen as an equally large step in the opposite direction.

What of the substance of the case?

The commission had originally concluded Apple benefited from sweetheart tax deals from the Dublin government between 1991 and 2015 which effectively enabled the company to avoid paying corporation tax on its profits made in Europe. In return, Ireland got investment and some valuable jobs. This, according to the commission, was a violation of the bloc’s state aid rules.

Yet judges in Luxembourg said this week the commission did not succeed in showing “to the requisite legal standard” that Apple had received an illegal economic advantage in this way.

That may not be quite the same as saying that the arrangement between the Cupertino-headquartered company and the Dublin government was entirely beyond reproach.

Nevertheless, it is being interpreted in some quarters as excellent news not only for Apple but for other multinationals who wish to minimise the corporation tax bills by shifting profits across national borders.

“Apple’s victory shows that European courts are unwilling to call beneficial tax regimes state aid, even when designed to attract foreign investment – provided they apply the rules consistently,” notes Jason Collins of the law firm Pinsent Masons.

“This will be a very welcome outcome for other multinationals who have been watching this case closely.”

That the ruling follows a similar reversal of a commission ruling on state aid for Starbucks last year will likely bolster that sense that a weight has been lifted.

Yet multinationals should, nevertheless, be wary of assuming they can return to business as usual when it comes to minimising their tax bills through complex corporate structuring and aggressive accounting practices.

Or that they have a green light to try to play European member state governments off against each other on tax, as they compete for their investment.

For one thing, the commission is likely to appeal against the verdict. For another, European governments, who have seen their tax revenues collapse in the Covid-19 crisis, are still interested in raising more money from multinationals.

Moreover, there is no evidence that popular anger over profit-shifting by multinationals has dissipated in recent years.

New laws can be introduced, such as the wave of digital sales taxes planned around the world, which are aimed at technology companies who are seen as picking and choosing where they pay tax.

The detail of the law is one thing, but public opinion is another. And high-profile multinational corporations, which need the public in Europe and elsewhere to buy their goods and services, would be well advised to take account of both.