Apple ruling: EU state aid tax cases become harder for Commission

Dr. Totis Kotsonis and Jason Collins of Pinsent Masons, the law firm behind Out-Law, made the prediction after an EU General Court ruling on Wednesday annulled a decision taken by the Commission in 2016 to order the Irish government to recoup up to €13 billion plus interest in unpaid taxes from US technology giant Apple. The Commission had concluded that Apple had received illegal tax benefits from the Irish government between 2003 and 2014 in breach of EU state aid rules.

It is possible that the Commission will raise an appeal against the General Court's judgment, which would take the case to the EU's highest court – the Court of Justice of the EU (CJEU). However, as it stands, the Commission will need to conduct "much more robust economic analysis" to justify future findings that tax breaks given to businesses by EU countries breach of EU state aid rules, Kotsonis said.

"This is a difficult judgment for the Commission," Kotsonis said. "The Commission will welcome the fact that the court has confirmed the Commission’s right to investigate national tax measures for compliance with state aid rules and helpfully re-affirmed its right to analyse the state aid compliance of national tax measures by reference to the arm’s length principle. These outcomes are important as they have been contested vigorously by certain member states and indeed alleged beneficiaries of state aid, including in the Apple case."

"However, much less welcome for the Commission is the court’s confirmation that the evidential burden necessary to demonstrate that a tax measure breaches state aid rules is high. In the Apple case, as in the Starbuck case before it, the court criticised the Commission’s analysis concluding that the Commission, ultimately, did not succeed in showing to the requisite legal standard that there was a breach of state aid rules," he said.

"The ruling will not stop the Commission from pursuing, as it has said it would, other state aid investigations focusing on the tax arrangements of member states with certain multinationals but it is likely to lead to a much more robust economic analysis on the part of the European Commission in its tax-related state aid decisions," Kotsonis said.

Collins said that while General Court's decision will be welcomed by many businesses, companies should be prepared for the Commission to explore other means by which to challenge beneficial tax regimes in the EU.

Collins said: "Apple’s victory shows that European courts are unwilling to call beneficial tax regimes state aid, even when designed to attract foreign investment – unless there is real evidence that supports the conclusion that the application of these rules have led to a selective advantage. This will be a very welcome outcome for other multinationals who have been watching this case closely."

"However, the EU's commissioner for the economy, Paolo Gentiloni, has confirmed that the Commission is exploring the use of EU treaty provisions which allow tax proposals to be adopted by qualified majority, rather than unanimity, to tackle those member states which it believes continue to operate tax regimes which can be used for 'aggressive tax planning'. We expect the European Commission to continue applying pressure in this area," he said.