Dr. Niall Moran (Dublin City University) 

On 10 September 2024, the European Court of Justice issued a final judgment in the Apple State aid case, upholding the appeal of the European Commission and setting aside the judgment of the General Court of the EU. There had been some expectation that the Court would send the case back to the General Court, but it found that it had “the information necessary to rule” on all of the pleas in the case. While much commentary and many news pieces on the Apple judgment have focused on the future of FDI in Ireland or how Ireland should spend the windfall from this case, this post focuses on the legal arguments of Ireland and Apple and why the Court rejected them. It first considers the pivotal question of selective advantage, before turning to Ireland and Apple’s other arguments, none of which were accepted by the Court.  

Selective advantage

EU state aid rules require that an advantage has been granted in a selective manner in order for there to be a finding that a measure constitutes state aid. As the other elements for a finding of State aid appeared to be easier to meet in this case, this question was always going to be pivotal to the outcome. The Commission’s 2016 decision found that the Irish tax rulings endorsed methods for allocating profit to Apple’s Irish branches that “depart from a market-based outcome” thus lowering their taxable base (paragraph 412). A selective advantage was found resulting in a finding of state aid under Article 107 TFEU.  The General Court found that the Commission used an ‘exclusion’ approach, which is inconsistent with section 25 of the TCA 97. This approach involves the examination of the non-resident company’s profits, and if profits cannot be allocated to other parts of that company, they are allocated by default to the Irish branches. The Commission used this approach when it considered that Apple Group IP licences held by ASI and AOE should have been allocated to the Irish branches, as they were regarded as having “neither the employees nor the physical presence to manage them” (para 186).

The ECJ accepted that applying an ‘exclusion’ approach would have been incompatible with section 25 of the TCA ’97 but found that it had not been established that the Commission allocated profits using only this approach (paras 117 and 277). Rather, the Commission drew that conclusion “after linking two separate findings” (para 129): first, the absence of critical functions performed and risks assumed by the head offices and, secondly, “the multiplicity and centrality of the functions performed and risks assumed by those branches, applying the legal test set out in recital 272* of the decision at issue”.  With this finding, the ECJ followed the Advocate General’s opinion and found that this ground of appeal should be upheld. It found that the General Court had erred in concluding that the Commission had adopted an ‘exclusion’ approach in its reasoning (paragraph 30, AG Opinion), an error that the AG had found to vitiate much of the conclusions of the General Court.

Ireland and Apple’s other arguments

The Court placed Ireland’s other arguments into five main categories, which are now summarised:

Can the aid allegedly granted be attributed to the Irish State?
The Court found that there had been an intervention that is imputable to the State. The tax rulings at issue were issued by Irish Revenue, which is an organ of the State (para 316). State aid does not require the transfer of State resources and includes the State foregoing revenue due to it.    

2. The right to be heard 

Ireland claimed that it did not have a real opportunity to engage with the Commission’s investigation, and that its decisions contained factual findings on which it had no chance to comment. The Court found that Ireland was “sufficiently informed” and had the opportunity to put forward all the comments they deemed relevant as interested parties (para 342). Thus it was found that there was no basis for this claim. 

3. Does the delay in this case breach the principle of legal certainty? 

This could have been an issue with one of these advanced tax rulings dated back to 1991. However the Court found that where aid has not been notified, the mere fact of delay by the Commission does not in itself suffice to render that recovery decision unlawful on the basis of the principle of legal certainty (para 356).

4. On breach of the principle of fiscal autonomy 

Ireland argued that direct taxation falls within the competence of the Member States; it argued that the Commission’s interpretation of Irish tax law was incorrect. The Court found that even in areas such as direct taxation, Member States must exercise this competence in compliance with EU law on State aid (para 370).  

A sixth category related to Ireland’s allegation that the Commission’s decision failed to state reasons (from para 385). Ireland argued that the Commission’s decision lacked adequate reasoning. The Court found that Ireland did not seek to criticise the failure to give reasons for the statements contained in the decision at issue, but the substance of those statements. The outcome of the Apple case represents a major victory for the Commission and Commissioner Vestager as her time as competition commissioner draws to a close. The Commissioner hailed the outcome as a victory for “European citizens and for tax justice”. There may be differing views in some quarters regarding the extent to which the broader concept of ‘tax justice’ aligns with the conventional understanding of justice. 

*In line with the legal test set out in Recital 272, “The profits to be allocated to a branch are then the profits that that branch would have earned at arm’s length…if it were a separate and independent enterprise engaged in the same or similar activities under the same or similar conditions, taking into account the assets used, the functions performed and the risks assumed by the company through its branch and through the other parts of the company.” 

The views expressed in this blog post are the position of the author and not necessarily those of the DELI blog.