EU state aid enforcement could change after Apple ruling

Dr Totis Kotsonis of Pinsent Masons, who specialises in subsidy controls and state aid law, was commenting after the Court of Justice of the EU (CJEU) effectively reinstated a 2016 decision of the European Commission which ordered 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.

State aid is a selective advantage granted by a national or local government to one or more businesses, and can take a variety of forms including grants, tax reliefs, guarantees, government holdings of all or part of a company, or the provision of goods and services on preferential terms. To ensure fair competition across the EU, state aid is generally prohibited unless it can be justified for general economic development reasons.

The Commission’s decision in the case of Ireland’s provision of tax benefits to Apple was annulled by the EU’s General Court in 2020, but the CJEU has now ruled to set aside the General Court’s ruling, determining, among other things, that the General Court had made errors of law and committed breaches of procedure in annulling the Commission’s decision in the case.

Rather than deciding to refer the matter back to the General Court for its reconsideration, as was open to the CJEU to do and which was recommended by an advocate general to the court who offered their opinion on the matter in November last year, the CJEU decided to give final judgment itself after assessing that it had “the information necessary” to consider the various legal arguments pertaining to the dispute.

Kotsonis said the European Commission and former EU competition commissioner Margaret Vestager personally are likely to “feel vindicated” by the CJEU’s ruling.

“Whilst the Commission has not won all cases against its tax-rulings state aid decisions, for example the EU courts' judgments in the cases of Fiat, Amazon and Starbucks, the various judgments have clarified the reach of state aid law with the courts effectively accepting the Commission's position that the principle of member state fiscal autonomy cannot be used as a shield in cases where national tax rulings breach EU state aid laws,” Kotsonis said. “Although there are a number of other tax related state aid investigations that are still ongoing, this high-profile judgment might yet constitute the high-water mark.”

“The key legal principles have now been sufficiently clarified so that, ultimately, challenges will now turn on the question of particular facts and evidencing that the relevant legal tests have or have not been met,” he said.

“Indeed, no doubt the Commission would also point to the fact that, as a result of its investigations, a number of member states, including Ireland, Luxembourg, and Belgium, have now changed their domestic laws to ensure that the type of concerns that the Commission has identified in its tax state aid decisions no longer arise,” he added.

Kotsonis said, though, that the new European Commission, which is being headed by re-elected president Ursula von der Leyen but for which a new EU competition commissioner has still to be appointed, may now choose to change tack with its state aid enforcement policy.

Kotsonis said: “Tax state aid investigations might no longer be seen as the policy priority that the Commission’s directorate-general for competition might have considered them to be a decade or even five years ago. The world has moved on. The EU is now faced with a different set of pressing challenges, including climate change and concerns over changes in the geopolitical landscape. With Vestager now exiting the stage, a new competition commissioner might yet focus their attention on the ‘flexibilisation’ of state aid rules, which will enable member states to deal more effectively with the challenges of attaining ‘net zero’ and encouraging the onshoring of critical and strategic industries.”

Dublin-based tax law expert Robert Dever, also of Pinsent Masons, added: “The decision is a lucrative one for Ireland, resulting in a windfall in the country’s favour, but undermines the government’s long-standing position that Ireland does not give preferential tax treatment to any taxpayers, companies or otherwise. It is to be hoped that any damage to Ireland’s reputation internationally will be limited having regard to the changes to Irish tax code, including to the rules in respect of corporate tax residency and the attribution of profits to branches of non-resident companies, in the last number of years.”

“The process of transferring the assets in the escrow fund, established to hold the funds representing the tax liability and interest purported to be owed by Apple pending the final determination, to Ireland will now be commenced following the judgment but will take a number of months to be finalised,” Dever said.