Tag Archive | "European Court of Justice"

Photo Credit: Josh Edelson/AFP/Getty Images

The EU Takes Ireland to Court: Understanding the Apple Tax Ruling and the Legal Ramifications of Ireland’s Failure to Act

Photo Credit: Josh Edelson/AFP/Getty Images

Photo Credit: Josh Edelson/AFP/Getty Images

In August 2016, the European Commission ruled that Ireland provided illegal state aid to the Irish subsidiaries of Apple, Inc. between 2003 and 2014, which amounted to approximately €13 billion. The Commission determined that Ireland’s illegal state aid took the form of “undue tax benefits” provided exclusively to Apple’s Irish subsidiaries: Apple Sales International (ASI) and Apple Operations Europe (AOE). Notably, ASI and AOE hold the rights to use Apple’s intellectual property to sell and manufacture Apple products outside North and South America under a cost-sharing agreement with Apple, Inc. The sales from such usage, nearly 60% of Apple’s total profits, are routed through these subsidiaries.

In 1991 and 2007, the Irish government issued two tax rulings that permitted Apple to artificially allocate the taxable profits of ASI and AOE. The method of determining Apple’s corporate tax liability in Ireland did not correspond with economic reality as almost all of the sales profits recorded by ASI and AOE were internally attributed to a “head office” that existed only on paper. The “head office” was not located in any state for tax purpose, it did not have any employees or operations, and it could not have possibly earned the sales profits that Ireland’s tax rulings permitted it to claim. Additionally, ASI and AOE sent yearly payments of approximately $2 billion to their parent corporation, Apple, Inc., for research and development (R&D) purposes. R&D payments are deductible expenses under Irish tax law, and so these amounts were not included in ASI or AOE’s annual taxable profits. As a result, Apple’s effective tax rate (ETR) in Ireland during the identified years amounted to 1% or less, compared with the statutory rate of 12.5%.

Under Article 107 of the Treaty on the Functioning of the European Union (TFEU), “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings … shall, in so far as it affects trade between Member States, be incompatible with the internal market.” The EU Commission determined that Ireland’s tax rulings permitted Apple to artificially determine its tax liability in a manner that did not reflect economic reality. This gave Apple an undue advantage over competitors in the EU marketplace.

TFEU Article 108(2) provides that the Commission decision may direct the violating Member State to abolish such aid and practices and recover the illegal aid “within a period of time determined by the Commission.” Traditionally, the Commission provides the violating Member States with four months from the date the decision was issued to recover the specified amounts of illegal state aid. The recovery time must be speedy so that the corporation does not continue to receive further illegal state aid for a prolonged period. The deadline for Ireland to implement the Commission’s ruling and recover the €13 billion from ASI and AOE was January 3, 2017. Over a year has passed since the decision was issued and Ireland has not recovered a cent of the €13 billion. Ireland has, however, identified its methods of calculating the precise amount of illegal state aid owed, and it seeks to recover the full amount from Apple amount by March 2018. Despite both Ireland and Apple’s appeal from the Commission’s decision, the €13 billion still must be recovered. The disputed sum plus interest should be held by a third party in an escrow account until all appeals are finalized.

Ireland’s failure to recover the €13 billion in the time provided by the Commission constitutes a violation of Article 108 of the TFEU. As such, the Commission is permitted to bring the matter before the European Court of Justice (ECJ). Per TFEU Article 108(2), “if the State concerned does not comply with this decision within the prescribed time, the Commission … [may] refer the matter to the Court of Justice of the European Union direct.” The Commission did exactly that on October 4, 2017 when it moved to refer Ireland’s violations to the ECJ. EU rules provide that the Commission can first seek a declaratory ruling that Ireland failed to comply with the Commission’s decision. If Ireland still fails to recover the amount in dispute after an ECJ declaration, then the Commission may bring a second case that could result in fines.

The Commission’s recent referral of the Ireland-Apple decision to the ECJ has put pressure on the divided Irish government. Many politicians hope to maintain Ireland’s reputation for having a corporation-friendly tax system, which will continue to incentivize multinational companies to set up subsidiaries, branches, and offices in Ireland. This in turn, is beneficial for Irish citizens as it brings in new jobs and economic growth. Others argue, however, that the corporate taxation scheme favors rich, foreign companies to the disadvantage of Ireland’s poor. Recovering €13 billion in alleged illegal state aid would fully cover Ireland’s health services for one year and permit rampant infrastructure upgrades nationwide. The Apple tax ruling puts Ireland in hot water as it continues to lure in multinational corporations, attempts to comply with EU law, and seeks to appease the demands of its divided population. Until the ECJ issues its decision, however, Ireland certainly ought to continue collecting the alleged illegal state aid from Apple.


Rachel Ronca is a 3L Dual Degree student (JD and LLM in International Business Transactions) at the University of Denver Sturm College of Law. She is the Managing Editor on the Denver Journal of International Law and Policy for the 2017-2018 academic year.

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Flags of the European Union

European integration – an overview of the European Union

Flags of the European Union

Flags of the European Union

This blog post is the first in a series of three where I will be exploring the forthcoming changes of the European Human Rights system. In this post I intend to give an overview of the European Union. The second blog post will focus on the European Convention on Human Rights. Both these posts will lay the foundation for the third blog post, where the EU’s accession to the European Convention of Human Rights will be discussed.

After the Second World War, the nations of Europe saw regional cooperation as a key for avoiding further wars. Out of the ashes of war two international organizations were set up; the Council of Europe and the European Coal and Steel Community. The former exists to this day, and is the parent organization of the European Court of Human Rights. The latter was the first building block of the European Union.

The layout of the Union

The European Union is, at its heart, an international organization. However, in contrast to traditional international organizations, which are generally a form of institutionalized inter-governmental cooperation, the European Union has a much larger autonomy.1 The EU has also been conferred considerable powers from the member states.

These powers are mainly exercised through the Unions’ four primary organs. The Commission is the Unions executive organ. It consists of 27 commissioners – one from each member state – sitting in their private capacity. The Commissions primary tasks is suggesting new legislation, enforcing legislation existing, and representing the EU externally.

One way of enforcing EU law is through the European Court of Justice (ECJ). As the supreme court of the EU it primarily handles two types of cases: Firstly, the so-called enforcement actions,2 which are brought by the Commission against a member state that it considers not to be fulfilling its obligations under EU law. Secondly, depending on the case, national court may either have a right, or be obliged, to ask the ECJ for its opinion on the relevant EU law. The Court then gives a preliminary ruling which will be binding upon the national court.3

The third body worth mentioning is the Council. It  consists of representatives from the member states, and has the final word on EU legislation and international agreements between the Union and non-member states. It also approves the budget and coordinate the economic, foreign and defense policies. Votes in the Council are weighed according to the size of the countries, and binding legislation may be passed without necessarily requiring unanimity. Even though the council resembles the main organs in other international organizations, it differs by being able to pass binding legislation upon member states without unanimous consent.

Finally we have the Parliament. It consists of several hundred members directly elected by nationals of the member states. It is supposed to provide democracy to the Union. However, few people care about, or even participate in, the European Parliament elections. In addition, there are no parties in the traditional sense, but rather coalitions of similar national parties. If one adds that the parliaments limited powers to the mix, one can easily see that the democratic alibi of the Union is lacking in accountability and effectiveness. However, since the Lisbon Treaty entered into force in 2009, the Parliaments powers when passing legislation has increased somewhat. While the legislative power in the end rests with the Council, the procedure today has a larger degree of cooperation built into it.

Legislation that stings

It is not just the layout of the organs that give the EU its’ supranational character. Much due to the the ECJ, which has followed a line of jurisprudence gradually extending the Union powers on behalf of the member states, EU law has become a powerful tool. Since the 1960s the ECJ has held that EU legislation has both direct effect in, and enjoy supremacy over, national law.4

This jurisprudence has in turn been accepted by virtually all national courts. Thus, implementing measures by individual member states are not necessarily needed for citizens to be able to rely on EU law before national courts. Since EU law may also be used to annul national legislation it has a sting to it that’s unmatched by other international organizations.

EU and human rights

Due to the broad scope of contemporary EU law, some of the legislative acts give rise to human rights concerns. Starting out as an economic union, human rights did not really have a place in EU law in the early years. Through the case-law of the ECJ, however, an EU concept of human rights evolved in the first couple of decades after the union was founded.5

When creating and interpreting the EU concept of human rights the ECJ was inspired by both national constitutional traditions and international conventions. Especially the European Convention of Human Rights was held in high regard. At the turn of the millennium the EU also proclaimed its own Charter of Fundamental Rights, which finally became legally binding through the Lisbon treaty in 2009.

But, as we shall see in my upcoming articles, the EU concept of Human Rights had its limits. Before we can investigate these limitations in detail a brief examination of the European Convention of Human Rights, and its system of enforcement, is necessary. That will be the subject of the next article.

Stian Øby Johansen is from Norway, and works as a Research Assistant at the Centre for European Law at the University of Oslo. He is currently writing his Master thesis on the European Union’s forthcoming accession to the European Convention on Human Rights.

  1. Trevor Hartley, The Foundations of European Union Law (7th edn, OUP 2010) 11
  2. TFEU art. 258
  3. Treaty on the Functioning of the European Union (TFEU) art. 267
  4. Case C‑26/62 Van Gend en Loos (1963); Case C‑6/64 Costa v ENEL (1964)
  5. See, among others: Case 29/69 Stauder v. City of Ulm (1969); Case 4/73 Nold v. Commission (1974)

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University of Denver Sturm College of Law