Apple wins tax battle with EU as court annuls 2016 order to pay $15 billion in taxes

Key Points
  • The European Commission said in 2016 that Ireland had enabled Apple to pay "substantially less tax than other businesses over many years."
  • But the EU's general court decided that the commission failed to prove that the Irish government had given the U.S. tech giant a tax advantage.

In this article

The Apple Inc. logo is displayed at the company's store in the Omotesando district of Tokyo, Japan, on Wednesday, June 3, 2020.

Apple won a landmark court case Wednesday against the European Commission over a dispute concerning 13 billion euros ($14.9 billion) in Irish taxes.

The EU's general court decided that the European Commission did not prove that the Irish government had given the U.S. tech giant a tax advantage.

The commission, the executive arm of the EU, had concluded in August 2016 that the Irish government granted illegal benefits to Apple and ordered it to recover 13 billion euros in unpaid taxes.

At the time, the commission said Ireland had enabled Apple to pay "substantially less tax than other businesses over many years," which meant that the U.S. firm was allowed to pay an effective corporate tax rate of 1% on its European profits in 2003, which fell to 0.005% in 2014.

The Irish government and Apple decided to appeal the commission's decision, with the company arguing the order to repay taxes "defies reality and common sense."

Ireland, Apple and the European Commission now have two months to decide if they want to appeal the latest ruling and potentially take it to the EU's highest tribunal.

In reaction to the court ruling, the Irish government said it has always been clear "that there was no special treatment provided to the two Apple companies" and that "the correct amount of Irish tax was charged taxation in line with normal Irish taxation rules."

The European Commission said in a statement it "will continue to look at aggressive tax planning measures under EU State aid rules to assess whether they result in illegal State aid." It added that it "will carefully study the judgment and reflect on possible next steps."

A spokesperson for Apple told CNBC: "We thank the General Court for their time and consideration of the facts.  We are pleased they have annulled the Commission's case."  Apple shares were up around 2% in premarket trading on the news.

Tech giants should have a special responsibility, EU official says

Why it matters?

This case was a centerpiece of the EU's crackdown on taxation in recent years. It could impact how the Brussels institution deals with other companies over taxation matters.

Taxation is taking an even more prominent role in the wake of the Covid-19 crisis. With many governments stepping up their spending, they will be looking for new sources of revenue in the form of taxation.

In this context, there's an ongoing debate as to whether the European Union should have its own digital tax — a levy on Big Tech to ensure they pay a fairer share compared to more traditional businesses.

"Whether the companies are American, whether they are Chinese, Japanese, Korean or European, this is about fairness of taxation systems," Arancha Gonzalez, minister of foreign affairs for Spain, told CNBC's "Squawk Box" on Wednesday.

Plans by some European nations, including Spain, to tax the technology behemoths more have met opposition from the United States, which argues the levy is discriminatory toward its domestic firms.

"What we are saying is that fairness requires every economic activity, whether the economic activity is provided analogically or digitally to contribute with their fair share of taxes," the Spanish minister added.

EU court backs Apple in fight over $15 billion tax bill