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Overview of Ireland’s Position at the Oral Hearing at the General Court of the European Union in the Apple State aid Case

This case concerns two Apple companies operating in Ireland through branches – Apple Sales International (ASI) and Apple Operations Europe (AOE).  For State aid to exist, an undertaking must have been granted an advantage through an intervention by the State that is selective in nature and has the potential to distort competition. In its decision of 2016, the Commission decided that Ireland granted illegal State aid to ASI and AOE.


Ireland fundamentally rejects the Commission analysis, which is why an application to annul the Commission Decision was lodged with the General Court of the European Union. The case was granted priority status and has been progressing through the various stages of private written proceedings before the Court. Further explanation of the main lines of argument in Ireland’s annulment application was published on the Department of Finance’s website in December 2016. - link here.


The position remains that:

  • Ireland did not give favourable tax treatment to Apple
  • The full amount of tax was paid in this case and no State aid was provided
  • Ireland does not do deals with taxpayers.


The oral hearing is taking place in the General Court of the European Union on Tuesday 17 and Wednesday 18 September 2019. Ireland’s opening presentation of the case at the oral hearing focused on the following broad points.


  1. This case relates to a mismatch in international tax law

The two companies, ASI and AOE, which operated in Ireland through branches, were incorporated in Ireland. However, they were not resident for tax purposes in Ireland as they were managed and controlled in the United States.


The significant value creation by the companies was in the United States. However, the companies were not tax resident, or “domestic corporations”, for US tax purposes as they were not incorporated in the United States.


Ireland collected all of the tax due from ASI and AOE in respect of their branches here. There was a mismatch between the Irish and US tax systems. State aid is not the way to deal with gaps in the international tax system.


  1. The Commission attempts to rewrite Irish law

The ordinary tax law applicable to branches in Ireland of non-resident companies is section 25 of the Taxes Consolidation Act 1997. The non-binding opinions given by Revenue in 1991 and 2007 did no more than apply section 25, which in accordance with the territoriality principle, taxed only the profits attributable to the Irish branch and not the non-Irish profits of the companies. ASI and AOE did not pay any less tax than was properly due under section 25.


The Commission contends that section 25 permitted and required Revenue to tax all of the worldwide profits of ASI and AOE. As supported by expert evidence, there is no basis in Irish law for the approach asserted by the Commission.


  1. The Decision misrepresents the activities of ASI and AOE Irish branches

The branches in Ireland carried out routine functions; ASI performed logistical functions regarding the sale and distribution of finished Apple products, and AOE manufactured and assembled certain Apple products.


All important decisions in relation to ASI and AOE were made in the United States and there were no intellectual property related activities in Ireland. Therefore, the very substantial profits deriving from this intellectual property were not attributable to the Irish branches.


  1. The Commission misapplies State aid law (Article 107) and the arm’s length principle

The Commission contends that Ireland was required to apply a Commission version of the arm’s length principle, but has not provided a coherent legal basis for this assertion or any definition of, or detail on, its version of that principle. This undefined principle is not part of EU law or Irish law in respect of branch profit attribution.


Even if the arm’s length principle was legally relevant (which Ireland does not accept) the Commission misapplied that principle.   


The Commission has wrongly rejected expert evidence that, even if the arm’s length principle had applied, the tax treatment of ASI and AOE was consistent with that principle.


There will be no further comment on these proceedings pending the judgement by the General Court of the European Union, the timing of which is a matter for the Court.