When Ireland’s lawyers laid down their heavy folders of notes in front of the judicial bench of the Grand Chamber of the European Union’s highest court and prepared to make their arguments about why Apple should not pay €13.1 billion in additional taxes to the State, they were not alone.
Not only did Apple have its own legal team arguing on the same side as Ireland – so did Luxembourg.
A legal team for the landlocked state with a population of 640,000 also appeared as a party to the proceedings and gave arguments in warm support of Ireland’s position.
Ireland and Luxembourg are two small countries with similarly competitive tax regimes and a common cause in fending off what they perceive as an agenda by the European Commission to crack down on their approach to attracting multinational investment.
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Both are veterans of many such battles who feel they are sticking up for each other as fellow small member states, by showing up to provide mutual support.
It’s often the same lawyers making the arguments, and it was something of a reunion as the various legal teams greeted each other warmly as they arrived for Tuesday’s showdown.
Ireland’s old warhorse is former attorney general Paul Gallagher. Back in 2018, he argued in a similar case involving Luxembourg that the commission was engaged in an illegitimate attempt to expand its powers by trying to harmonise EU tax rates through the use of state aid rules. On Tuesday, he accused the executive of seeking to “interpose OECD principles into Irish tax law”.
Apple also argued that the commission had relied on principles of international taxation and disregarding Irish tax law. “It’s national law that is critical, not what the commission would like national law to be,” as Apple’s senior counsel Daniel Beard put it.
When Luxembourg challenged an order by the commission that Amazon should pay it €250 million in back taxes due to a tax arrangement it said amounted to illegal state aid, Ireland was there to argue in support of the Grand Duchy.
Ireland showed up once again to offer support when the commission ordered a Fiat Chrysler subsidiary to pay Luxembourg an additional €30 million to rectify aggressive tax planning, and once more to back the Netherlands when they refused a commission order for Starbucks to pay them an extra €25.7 million in tax.
[ Apple argues disputed €13.1 billion is being paid in tax to the United StatesOpens in new window ]
These were all landmark, high-profile cases that some described as a pan-European crusade by the commission against perceived sweetheart tax deals for multinationals, with competition chief Margrethe Vestager at its head.
She argued that such deals gave unfair advantages within the single market, and could therefore be challenged under EU competition rules. It was a novel approach that was not without its critics, who saw this as an indirect way to attack low-tax jurisdictions within the single market, with the backing of the larger countries who felt these arrangements were conning them out of their rightful tax intake.
The heyday of this approach was in the commission’s last term of 2014 to 2019, when Vestager was first appointed to lead the competition file. At the time, then-commission president Jean-Claude Juncker was calling for the removal of single-country vetoes and a move to qualified majority voting on some policymaking areas related to taxation.
Vestager oversaw a series of investigations into multinationals that concluded they had been given unfair benefits, and ordered member states to recoup additional tax.
But legal objections by the companies concerned and the EU member states that were host to them led to the ongoing court battles – and delivered a string of bruising defeats to the commission.
The EU’s General Court found against the commission and in favour of Starbucks and the Netherlands in 2019, and the commission was defeated again at the EU’s highest court in its case against Fiat last year. The commission was also defeated in the Amazon and Apple cases, but appealed.
[ Amazon wins appeal against €250m Luxembourg billOpens in new window ]
Nowadays, a very different approach has proved more successful in taming the excesses of the tech giants and harmonising international taxation law.
The commission successfully oversaw the introduction of sweeping new Digital Services and Digital Markets Acts, with far-reaching rules and implications for big tech, including the power for regulators to break up online monopolies that repeatedly break competition rules.
And Ireland has committed to raising its minimum tax rate for large multinational companies to 15 per cent, under the international OECD tax deal, which also aims to reform how taxation obligations are determined in the digital age.
When the commission was defeated at the EU’s highest court in a ruling late last year that found in favour of Fiat and Luxembourg, it was a blow. The court ruling was final and could not be appealed. Vestager described it as a “big loss for tax fairness”.
Legal observers noted that the development could bode ill for the commission’s chances of winning its ongoing Apple and Amazon appeals, because of similarities between the cases.
If the Court of Justice of the European Union judges ultimately rule against the commission when they deliver their ruling on the Apple case, expected early next year, it would further discredit the already-damaged strategy of trying to achieve greater tax equity through state aid rules – and part of Vestager’s legacy with it.
