Apple, Google Lose in EU Supreme Court
Apple convicted to pay 13 billion Euros, Google must pay 3 billion Euros. This was the last court of appeal, so the sentences will stand.
Just a few weeks before leaving her post on 1 November, EU competition Commissioner Margrethe Vestager wins two cases at the supreme court of the European Union. Apple to pay 13 billion euros, Google 3 billion euros.
Margrethe Vestager, EU Commissioner for Competition. Photo by Stine Heilmann © European Commission
Apple decided to locate its European headquarters in Ireland, based on agreements they made with the Irish government on a company-specific, very low tax rate. Ireland has adopted a policy of tax rebates to big corporation if they locate there. It boosts the GDP significantly, even if it is just a flow-through of money, and also allegedly provides some high-tech jobs that are otherwise very scarce in the somewhat lagging economy. The EU Commission originally accepted that the Irish offer this kind of incentives, as a sort of development support and a helping hand to the Irish. The tide soon turned, though, when politicians of other member states saw what kind of tax cuts Ireland offered and what kind of revenues Apple made in their countries.
In reality, Apple pays less than one percent tax, so little that Margrethe Vestager at one point called it zero, next to nothing. More officially, it is closer to 0.005 % which is also nothing. Considering that Apple books all its EU income in Dublin, it means Apple does pay nothing to the country where it sells products, and just the tiniest bit in Ireland, before it transfers the proceeds to USA or some tax haven.
Given this realization, the EU Commission determined in 2016 that Apple had paid much too little in tax in the EU and filed a case with the courts to normalize the tax regime for Apple in Ireland. Basically calling the low Irish tax rate illegal and commanded the Irish state to demand retro payment of appropriate taxes from Apple. So really, it was a lawsuit against Ireland in the first place, secondarily to hit Apple as the main beneficiary of the unlawful tax regime.
The European Court of Justice decided on Tuesday that the Commission is right. Therefore, Apple must pay the money back to Ireland. They have been on a frozen account during the case and must now be released to Ireland.
The EU's top court reversed a previous ruling to reinstate Vestager's 2016 finding that Apple's tax arrangements with Ireland racked up some €13 billion in illegal state aid. The judgment was a shock since Vestager had lost earlier tax cases involving Amazon and Engie.
"It was a win that made me cry because it is very important," Vestager told a press conference in Brussels. "It's very important to show European taxpayers that once in a while tax justice can be done. (Politico Europe)
Ireland has provided Apple with illegal subsidies, which Ireland must demand to be repaid, states the EU Court in the judgment. It is final and cannot be appealed. Apple is "disappointed" by the decision, says a representative of the company, according to the news agency Deutsche Presse Agentur (dpa.com):
The EU Commission is trying to change the rules retroactively and ignores that our income, as required by international tax legislation, was already subject to tax in the USA, says the representative of Apple.
Apple thus rejects that it has not paid the tax it should have.
This is the biggest case that Margrethe Vestager has brought to the EU court, but she has run many others against US and EU companies, winning many of them. At the time, in 2016, the Apple case caught a lot of attention and Apple top chief Tim Cook himself traveled to Brussels to meet Vestager at a private meeting in her office at the Commission. This was reported in the news at the time.
There were no further details in those reports, but informally it has come out that Tim Cook, at the time accused of having somewhat limited respect for women in business, effectively started mansplaining to Vestager that her case was impossible and why it was ridiculous to think this kind of stuff up. It was a short meeting that did not improve their relationship. Vestager went on an pursued the case, and there were defeats for her in the courts over the next many years. But now, she succeeded, surprisingly, she said, which may be the reason for her tears (of relief and joy) when the final verdict was announced.
Vestager is known for her calm temperament, concern for small and medium businesses, being an able and studied economist that served as a minister in Denmark before she was appointed Commissioner 10 years ago. She often brings her knitting piece (at one time it was small elephants for sick children) to meetings, she designs and sews her own clothes, and she does not take any bullsh*t. In her office at the Berlaymont in Brussels, she has a few unusual items including a step-ladder and a plaster cast of hand with the f*ck-finger extended. Asked about those, she said you know, a woman who wants to go to the top needs to bring her own ladder. And the finger? A gift from a worker’s union that she fought with as a minister, to remind her that as a powerful person, you must not forget that your decisions can hurt real people.
Apple and Alphabet, the owner of Google, are not the only internet giants that are under scrutiny by the Commission. Apple itself has a new competition case coming regarding advertising and the Appstore. Apple and others are facing cases regarding the new DMA Digital Markets Act which we will hear much more of soon, also in this newsletter.
Thank you for explaining the background of the case and the prosecutor. In light of this final decision, will Ireland no longer attract as much foreign direct investment as before? Will foreign (non-EU) companies move their European regional headquarters to other European cities? If so, which locations are most likely to attract such investment?