The Apple Judgement

Why the Commission will Continue to Pursue State Aid Cases

Jim Stewart27/07/2020

The Apple Judgement (1) has been widely acclaimed as a vindication for Ireland, its tax regime and policies towards FDI.

Apart from Apple itself, it is hard to find much acclaim outside Ireland. The Financial Times considers the judgement to be “a serious setback to [the Commissions]  laudable efforts to curb unfair corporate tax practices through state aid control” (2). The speaker of the German Greens in the European Parliament stated that the court decision “is a bitter setback in the fight against tax dumping in Europe” (3). Paul Tang (MEP and chair of a new European   Parliament Permanent Tax Subcommittee) called the decision “deeply unfair” (4).

Students of Apple and its tax strategies will also be disappointed in reading this judgement as it has very little new information on Apple structures and tax strategies.


The Origins of the Case

The Commission first sought information from Apple in June 2013 and commenced a formal investigation in June 2014 (5).  This followed publication of a Report in May 2013 by a US Senate subcommittee into tax avoidance and Apple (6). The US Senate Report  found that Apple tax strategy was “to establish and direct substantial funds to offshore entities in Ireland, while claiming they are not tax residents of any jurisdiction” (Senate subcommittee p. 2).

Profits of these subsidiaries profits grew substantially as a result of ‘profit switching’ within the Apple Group.  Apple Sales International (based in Cork) reported profits by of $22 billion (63% of group profits)  in 2011, but tax paid amounted to just $10 million.


Commission State Aid Cases and Aggressive Tax Planning

The Report on Apple by the US senate Sub Committee made public, what was a closely guarded secret - the tax arrangements for Apple subsidiaries in Ireland.  The adverse publicity following the US Senate subcommittee Report and the EU commencing a full investigation led to changes in legislation in 2014 requiring tax residency for all entities. That meant that a ‘stateless income’ tax strategy was no longer possible.

The ‘double Irish’ tax strategy was considerably restricted in 2015. But those firms with existing ‘double Irish’ tax structures could continue to use these structures until December 2019. As a result identified profits of firms using a ‘double Irish’ structure (resulting in near zero corporate tax) amounted to €51.8 billion, €45.9 billion and €37.3 billion respectively for the years 2016-2018. Profits of subsidiaries of Google and Facebook using the same tax  structure amounted to $15.5 billion (with near zero Tax) and $15.3 billion (with no tax) respectively for the year 2018.

Investigations by the US Senate Sub-Committee and the Commission State Aid Cases on tax rulings, have made a substantial contribution to aggressive tax planning.

All cases where the Commission instigated State aid cases have been appealed to the European courts with mixed results (7).  For example, the Commission won a  case against Luxembourg in relation to Fiat at the General Court of the European Union (Reuters, December 7, 2019), but in addition to the Apple case also lost a case against Netherlands and Starbucks.

However the strategy of the Commission challenging tax rulings by Member States has been successful in other ways. For example, it has been reported that over 300 tax rulings have been sought from Ireland alone (Irish Times Oct 21, 2016).  The policy of requesting tax rulings from Member States increases oversight over a key aspect of tax policy. 

A more important success for the Commission from this and a previous judgement (Starbucks case) is the recognition that European courts have the jurisdiction to decide on tax rulings in State aid cases. This is of particular importance given that a key part of Ireland’s (and other countries) appeal was  that the Commission did not have the legal authority to investigate tax rulings (Apple Judgement par. 106).


The General Court Judgement

The General Court concluded that the “Commission did not succeed in showing, in the present instance, that a selective advantage had been given [by Ireland] to ASIU and AOE” (the Apple subsidiaries), and that the “Commission erred (Judgement par. 284) when it concluded that “Apple Group’s IP was necessarily managed by the Irish branches of ASI and AOE, which held the licences for that IP”.

In particular the court placed considerable weight on “an expert in Irish tax law” whose opinion is based on an Irish tax case from 1988 (S. Murphy (Inspector of Taxes) v. Dataproducts). This opinion argued that in determining profits of an Irish branch (as is the Apple case) control over the property of that branch is key. If the branch does not have ‘control’ over the property, then income from that property cannot be taxed in Ireland (Judgement par. 179-184). The judgement states (par. 181) that this principle applies where property is controlled by a non-Irish company and “made available to the Irish branch” of that company.  Effectively the General Court accepted the arguments of ASI and AOE that the Dataproducts  case created the opportunity for a ‘stateless income’ tax strategy to become part of  Irish tax law – unusually a single court case resulted in a change in tax law used by one firm.

The court concluded (par. 187) “the Commission erred, .. ..  in its assessment .. ..of Irish tax law relating to the taxation of the profits of companies that are not resident in Ireland but which carry on a trade there through a branch”.

Apple and ASI had argued that “All strategic decisions were taken in accordance with an overall business strategy covering the group as a whole” (par. 30).  These decisions are described by both Apple and the General court as being “based in  Cupertino” rather than naming a  legal entity based in Cupertino throughout the Judgement.

Decisions on financing, pricing, accounting, development of products and R & D strategy were decided centrally. This most certainly includes taxation, although it was omitted from the list of centrally provided functions.

In this regard Apple is no different from any other MNE.  Strategic decisions relating to the operation of the business are formally made by the chief executive and senior management.  Although the actual tasks, for example in relation to R & D are often performed at some other location.

The formal location of strategic decision making is  not sufficient grounds for allocating most profits to where an MNE has its group head office.

The General Court leaves unanswered the question of the source of value added and where profits should be allocated. For example, value added could be derived from market structure, superior productivity, lower regulatory or other costs or anticompetitive practices.  In this context the Commission decision to start two separate antitrust investigations into Apple is interesting (8; 9)

In a number of instances where the evidence is ambiguous the judgement concludes in favour  of Apple and Ireland.  For example, a key point is whether Apple subsidiaries (ASI and AOI) had the ability to make key decisions.  The judgement concludes that even though minutes do not give details of decisions,  this defect is not sufficient to show “that those decisions were not taken” (Judgement par. 304).

The Apple Judgement states that documentation by Revenue in relation to the contested tax rulings was “insufficiently documented”.  While this was considered a “regrettable methodological defect”, the court concluded this “defect is insufficient to show that the contested tax rulings were the result of a broad discretion exercised by the Irish tax authorities” (Judgement par. 500).


Effective Tax Rates for Apple in Ireland with a Replacement Tax Strategy

Apple replaced the stateless income strategy with a strategy based on switching intellectual property (I.P.) to Ireland to avail of large write downs against tax. The I.P. was financed via intragroup loans from a fellow subsidiary in Jersey resulting in large interest deductions against tax (See 10, pp 54-55).

The Table below shows extracts from the most recent accounts of  Apple Operations International (AOI) (the main Apple operating subsidiary in Ireland).  The Table shows that effective tax rates (defined as cash tax paid/pretax profits) amounted to 3% for 2018, compared with 12% using tax charge/pretax profits as a measure.  Ending the ‘stateless’ income tax strategy has increased effective tax rate from 0.005% in 2014 to 3% in 2018 but this  is  still well below the statutory tax rate of 12.5%. 

It is unlikely that all tax payments shown in Table (1) accrue to Ireland, but Apple  is still likely to be amongst the top 10 corporate tax payers in Ireland. It is also interesting to note that AOI accounts for 62% of the global profits of Apple Corporation for 2018.


Table (1)

Profits and Tax Paid for Apple Operations International (AOI) ($ millions)



Pretax profits

Tax Charge (from Income Statement)

Cash Tax paid

Tax charge/

Pre tax profit

Cash Tax paid/ pre-tax profit















Source: Accounts of Apple Operation Europe, 2018


Many other MNE groups operating in Ireland are likely to use similar structures.  Dell and Microsoft for example transferred I.P. assets to Ireland in 2019.  In the case of Dell this resulted in tax benefits of $4.9 billion (Dell Form 10K 2020, p. 143).

Table (2) shows that I.P. write off is a very valuable tax relief and far larger  for example, than R&D tax relief. The value of I.P. tax relief is likely to have grown substantially in more recent years because of the growth in intangible assets. These increased (in constant prices) by approx. €40 billion in 2018 and by €100 billion in 2019 (11).


Table (2)

Capital Allowances Claimed (€Million)





I.P. Relief




R and D Relief




Source:-  L. MacCarthy, Corporate Tax 2018 Payments and 2017 Returns.


International Tax Law is Complex

International tax law is complex and reform of corporate tax via court cases is difficult and uncertain. Profit allocation rules are dependent on rules comparing prices on intrafirm trade to the  ‘market values’ of goods and services.  In many cases there is no comparable ‘market’ prices, for example components of an Apple iPhone.

Yet reform, in particular taxation of the digital economy is urgent.

The process of reform using the OCED BEPS process is uncertain has ended following a US decision not to participate (12).  Several countries have or propose to introduce their own unilateral reforms, but the US has threatened trade sanctions if such taxes are imposed. International reform will depend on political change in the U.S. Even then agreement may not be possible given the very divergent national interests involved.

The Commission  recently published proposals for tax reform involving changes to the process in which laws are made using what is termed the ‘Ordinary Legislative Procedure’. The changes would mean that tax directives at European Council meetings would be determined by Qualified Majority Voting (QMV) rules rather than requiring a unanimous decision (13, p. 2). This could finally allow the introduction of reforms for example, a digital tax.

The proposed change to  voting procedures at the European Council  is  likely to be resisted by a number of countries including Ireland, with possible extensive litigation.

In addition to seeking tax reform the Commission will most likely continue to pursue State aid cases to restrict unfair tax competition as these are the only current tools recognised as being compatible with EU treaties.

For this reason it is very likely that the Commission will appeal the General Court Apple Judgement. Others also consider an appeal likely though for different reasons (14)



Posted in: Corporate governanceTaxation

Tagged with: applecorporatesocialresponsibilitycorporationtax

Prof Jim Stewart

James Stewart

Dr Jim Stewart is Adjunct Associate Professor at Trinity College Dublin. His research interests include Corporate Finance and Taxation, Pension Funds and financial products, Financial Systems and Economic Development.

He is widely published and his titles include Mutuals and Alternative Banking: A Solution to the Financial and Economic Crisis in Ireland (2013), Choosing Your Future: How to Reform Ireland's Pension System (co-author, 2007) and For Richer, For Poorer: An Investigation of the Irish pension system (2005).



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