05/05/23

INTERNATIONAL TAX: EU set to lose state-aid case ahead of Apple tax showdown.

As published on independent.ie, Friday 5 May, 2023.

European Commission vice-president Margrethe Vestager has suffered a fresh blow in her high-profile actions to link corporate taxes and state aid ahead of this month’s Apple tax case appeal.
The Commission was wrong when it found Luxembourg granted illegal state aid to energy company Engie by providing it with so-called tax rulings, the Advocate General of the European Court of Justice (ECJ), the EU’s highest court, has found.

Advocate General Juliane Kokott is not a judge but the official’s guidance is generally followed by the court. The case has strong similarities to the Apple tax case which also centred on the status of tax rulings provided to the company and which is due at the same court later this month.

In 2018 the European Commission determined that Luxembourg granted the Engie group unlawful state aid through tax rulings relating to its operations in the country.

In the Commission’s view, the group had, in tax rulings, been granted tax treatment whereby almost all profits made by two subsidiaries in Luxembourg would ultimately remain untaxed.

That original decision was backed when the case was taken to the General Court of the European Union (GCEU).

However, Luxembourg and Engie appealed to the higher court and on Thursday the ECJ’s press service said the Advocate General had determined that “tax rulings do not, in themselves, constitute illegal state aid”.

“Tax rulings are unproblematic in terms of state aid law as long as they are open to all taxpayers and are in line with the relevant national tax law, which forms the sole reference framework,” the press release said.

Luxembourg has already won legal actions against the Commission in other cases. Last November the ECJ said a tax ruling received by carmaker Fiat did not constitute illegal state aid and Luxembourg also won an earlier case against the Commission’s decision to order it to collect €250m in back taxes from Amazon EU.

The Luxembourg cases added to other setbacks in what had been the centrepiece of Ms Vestager’s big push to make multinationals pay a fair share of tax.

The Apple case is the most high-profile element of that push. Two years ago the EU’s lower General Court threw out the Commission’s earlier ruling that Ireland must collect €13bn of alleged back-taxes plus interest claimed on the basis the tech giant had sweetheart tax deals for decades.

The Commission’s appeal against that ruling is due to be heard in court later this month.

The court dismissed what it described as the Commission’s “erroneous assessments of normal taxation under the Irish tax law applicable... [and] erroneous assessments of the activities within the Apple Group”.

Because its grasp of the facts was “erroneous”, the Commission couldn’t show any illegal state aid or favouritism to Apple over other companies, the Court said.

The Commission has said it thinks the General Court made a “number of errors of law” in its Apple tax findings when it launched its appeal.

In the meantime, Ireland has held the €13bn of contested Apple taxes in an escrow account. If the Government here wins the case, the money will be returned to the technology firm. If it loses the money will be available for public spending.