The Apple State Aid Case

The Apple Case raises a number of questions concerning the application of State aid review to the taxation of multinational entities. The case’s prominence stems primarily from the taxpayer’s brand recognition and the amount of taxes at stake; the legal questions raised, however, are interesting in their own right: the case differs in several respects from the previously decided Fiat and Starbucks cases, leaving the outcome quite open. First, while it has been held by the General Court in those previous cases that the arm’s length principle can be used as a yardstick to assess transfer prices accepted by a Member State’s administration, it is not inevitable that this implies the similar applicability of the AOA to branches of non-resident companies. Second, the application of the AOA appears only to be leading to a decisive win for the Commission if the Court agrees that the US head offices do not exercise important functions related to Apple’s IP. As the Commission both accepted the claim that the subsidiaries’ effective management and control was exercised there and did not challenge the CSA (and – by implication – accepted the reality of ownership of IP by those subsidiaries), this may turn out to be difficult to prove. A third doubt arises from the apparent acceptance by the Commission that the aid granted by Ireland could be reduced to the extent that other countries would make valid claims to tax the same profits that the Commission considers attributable to the Irish branches, especially in light of the fact that it appears the entirety of the relevant profits can be included in US taxation following the reforms introduced with the 2017 Tax Cuts and Jobs Act with respect to global intangible low-taxed income. That being said, the Commission is surely on stronger ground in claiming that the Irish tax system as applied in practice may have left too much discretion to tax authorities in any given case. It will be interesting to see how much weight the Court will give to the paucity of available documentation from the time of the tax rulings, and how it will consider the transfer-pricing reports produced ex post facto to justify the outcome when the Commission investigated them.