Apple clashes with EU over $14B tax bill

Apple Inc. and Ireland hit back at the European Union's antitrust watchdog in a €13 billion ($14 billion) court clash that may help to define the legacy of Competition Commissioner Margrethe Vestager.

At an appeal hearing at the EU's Court of Justice, Apple said Vestager's team made legal errors when they concluded the iPhone maker was given vast amounts of unfair tax aid from Ireland and issued an order to repay the money. 

"The essence of this case is simple, the commission just got the facts wrong about what activities went on in Ireland," Daniel Beard, a lawyer for Apple, told the court. The commission's analysis "was infected" by the "wrong legal premise," added Paul Gallagher, a lawyer for Ireland.

Brendon Thorne/Bloomberg

The European Commission is in court to contest a painful setback at a lower tribunal in 2020 over its record bill for Apple, levied in 2016. The case is a crucial test of Vestager's ongoing crackdown on sweetheart tax deals for multinational firms. The top EU court's binding ruling will help determine the course the commission can take as it has vowed to keep up chasing unfair tax deals during Vestager's tenure, which comes to an end next year.

The EU appeal has taken on added importance following a series of crushing court defeats in other cases targeting Amazon.com Inc. and Stellantis NV's Fiat after judges faulted its findings that Ireland and Luxembourg had given the firms an unfair tax advantage. Earlier this month, the bloc's top court annulled the commission's 2018 order for Engie SA to pay back €120 million in unfair fiscal aid to Luxembourg.

At the heart of the Apple case are questions on where value is created and where it should be taxed and concern two Apple units in Ireland. The firm argues that key decisions on its products are made at its Cupertino headquarters and that profits should be taxed there. Apple had delayed returning international profits to the U.S. for years, citing high costs, until changes to the tax code saw it start repatriating foreign earnings in 2018.

Besides its reserves for future payments, Apple "is paying around €20 billion in tax in the U.S. on those very same profits that the commission says should have been taxed by Ireland," Beard said.

Vestager has previously warned that the lower EU court's ruling in favor of Apple would have "far-reaching consequences." Apple's Irish units recorded almost all profits from sales outside the Americas, she said.

The EU commission said Apple's Irish units took key decisions and "performed an array of functions" and the bloc's lower court "annulled the commission's findings of selective advantage by applying the wrong legal test," according to its lawyer Paul-John Loewenthal. 

The court will issue a non-binding opinion in the case on Nov. 9, Advocate General Giovanni Pitruzzella said at the end of the hearing. A final ruling is likely to follow within six months after that.

The case is: C-465/20 P, Commission v. Ireland and Others.