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the saga continues

An EU court has ruled in favour of Apple and Ireland in the €13 billion tax row. So what happens now?

Officials are already exploring the possibility of using a Treaty article to crack down on low-tax countries.

MUCH TO THE chagrin of the European Commission, the General Court of the European Union ruled this morning that Ireland will not receive €13 billion in unpaid taxes from Apple.

It’s an important milestone in the saga that began in 2014 when the Commission launched an investigation into two Irish tax rulings that it eventually concluded provided “illegal tax benefits” to the tech giant.

The General Court has now rejected the findings of that investigation on the basis that the Commission “was wrong to conclude” that Apple had been “granted an unfair economic advantage” in breach of EU State Aid rules.

Important as this morning’s judgment is, it’s far from the final chapter in the saga.

As Sinn Féin finance spokesperson Pearse Doherty said on RTÉ’s Today with Sarah McInerney earlier today, “this is only halftime”.

The Commission could well file an appeal to the European Court of Justice, the highest court within the EU, which could drag the process out further.

In a statement released after the judgment, European Commission executive vice-president Margrethe Vestager, who lead the investigation, said, “We will carefully study the judgment and reflect on possible next steps.

“The Commission stands fully behind the objective that all companies should pay their fair share of tax… The Commission will continue to look at aggressive tax planning measures under EU state aid rules to assess whether they result in illegal state aid.”

Vestager now has two months and 10 days to file an appeal to the higher court on a point of law.

Experts say that it could take 18 months to two-and-a-half years for a final ruling to be delivered, which could, in theory, overturn all or part of the General Court’s judgment.

But, as Richard Curran, presenter of The Business on RTE Radio 1 said this morning, the judgment is “quite a slam dunk” for Ireland and Apple.

The Luxembourg court rejected the Commission’s primary, “subsidiary” and “alternative” legal arguments and left little room for ambiguity about its interpretation of the various strands of the case.

Speaking to TheJournal.ie yesterday, Ronan McCrea, professor of European and constitutional law at University College London, said that the ruling of the General Court would give a “good indication” of what the Court of Justice might do in the event of an appeal.

Correcting ‘distortions’

Even before that appeal is heard, the ruling could have major policy implications.

Earlier this week the Financial Times reported that EU officials were exploring new methods of cracking down on low-tax member states like Ireland, using Article 116 of the 1958 Treaty on the Functioning of the EU.

It’s no coincidence that EU Commissioner for the economy Paolo Genitloni today confirmed that officials are examining its potential.

That article would, in theory, allow the Commission to circumvent one of the biggest obstacles it faces in getting tax harmonisation legislation through the EU Council, which is the need for all 27 member states to agree to the new laws.

Because of this principle of ‘unanimity’, individual countries like Ireland can veto efforts to pass such legislation.

On paper, Article 116 would allow the Commission to correct so-called “distortions” in the Single Market caused by perceived sweetheart corporate tax arrangements. The instrument would only need the support of a qualified majority of the EU27 rather than the backing of all members and would allow the Commission narrow powers to issue directives to countries on taxation issues.

It’s unclear if today’s ruling will have any legal implications for the application of that mechanism, but it certainly sounds like the Commission is serious about invoking the article in the absence of a positive result in the General Court.

Getting it passed through the Council would require a lot of effort and officials might be unsure of their legal standing as a result of today’s ruling, Professor McCrea said yesterday.

He said, “Before the Commission considers proposing legislation under Article 116, they would probably want to wait for the Court of Justice to have its say on the Apple Tax judgment.

“The Commission would first have to consult the member states then the legislation has to go to the Council of Ministers, and the European Parliament. By the time it comes into force, the Court of Justice might not have ruled yet and then it might rule that the legislation can’t be passed.

“So they might want to wait for a definitive ruling.”   

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