Ireland's strong commitment to fostering a supportive environment for corporate taxpayers is demonstrated by the lengths the Irish Government went to support Apple to secure a ruling in its favour this July against the European Commission's State Aid case, despite the tax windfall it could have pocketed.As a jurisdiction that welcomes multinational companies, which directly and indirectly contribute vast revenues to the national economy, Ireland approached the Apple case from the perspective of the country's long-term reputation as a great place to do business and the importance being able to set its own tax policies, rather than taking a short-term political win that would net €13bn plus interest.
The Apple Case
At its core, the complex Apple appeal was about a claim made by the European Commission that two tax rulings granted to Apple by Ireland offered the company more attractive tax treatment than would be available to its peers. In a long-awaited judgement, the EU's second-highest court in July 2020 decided that the European Commission had failed to prove its case that Ireland misapplied its tax laws, vindicating the rulings for Apple.
Tax rulings such as Apple's are vital for multinationals, and the economies to which they contribute. By engaging in negotiations with local authorities on complex matters, MNEs can achieve certainty on their future tax treatment, by receiving a judgement from the local authorities on how they should comply with the country's tax laws.
These rulings do not provide a favourable treatment for the company, and when they do they may rightly be challenged by the Commission, whose mandate includes ensuring that competition isn't distorted within the EU.
If companies cannot rely on these rulings, it damages investment – both in Ireland and the EU – and can lead to disputes. Businesses must be able to rely on these tax rulings and expect certainty – and it is right, then, that a government that grants one actively defends it, as Ireland did for Apple to its credit.
The Commission's Tax Ruling Probes
The Commission's decision to launch an investigation into Apple's tax rulings, and concurrently those for a handful of other multinationals situated in other EU member states, was seen at the time as the start of a controversial campaign that would potentially branch out to cover hundreds of tax rulings granted across the EU. Many saw the campaign as an overreach of the Commission's powers – that the Commission was seeking to retroactively rewrite countries' tax laws – including many in the US.
What Does The Future Hold?
Ireland's victory in the Apple case is sure to slow, if not halt, the Commission's campaign in this area. The Commission may yet appeal the decision before Europe's top court, but this looks unlikely. The Commission has only until 25 September to lodge its appeal, and at the time of writing, there are no signs of this happening.
Under the third Directive on Administration Cooperation in tax matters (DAC 3), EU member states may now check for themselves whether they consider the allocation of taxing rights to be unjust and not in line with their and international law. The EU has also announced that it will soon launch proposals, expected to be put to member states of consideration in early October, for a new business tax "Action Plan" to deliver fairer and more efficient business tax rules.
Except for championing legislative action to change how multinationals are taxed, it is now down to lawmakers within EU states, not the Commission, to decide on member states' tax policies, and any efforts to extract more tax from multinational firms will no longer be enforced retroactively.
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