Background to the European Court of Justice decision
The tax relations of internationally operating groups have been the focus of European institutions for years. In particular, the interplay between national tax regimes and the requirements of EU state aid law regularly poses complex challenges for companies, states, and investors. In the ongoing legal dispute between Apple and the European Commission, the Court of Justice of the European Union (CJEU) once again delivered a significant ruling on September 11, 2024, addressing the tax structuring leeway for multinational companies within the internal market.
The dispute over tax privileges in Ireland
Initial situation
Apple operates within the European Union primarily through subsidiaries in Ireland. The European Commission took the view that the decisions granted by the Irish tax authorities — so-called tax rulings — had provided Apple with impermissible advantages. Specifically, the case concerned tax arrangements from the years 1991 and 2007, which, according to the Commission, resulted in a significant reduction of the corporation’s tax burden.
Decision of the European Commission and reactions
In 2016, the Commission called upon Ireland to demand tax back-payments of around 13 billion euros plus interest from the group. The reasoning was that the granted tax benefits constituted unlawful state aid according to Articles 107 and 108 TFEU. Ireland and Apple rejected these allegations and brought the case before the General Court of the European Union (GC), which in 2020 found the Commission’s actions to be insufficiently substantiated and overturned the demand for recovery.
The current judgment of the CJEU at a glance
Reasoning of the CJEU
However, with its current decision, the CJEU overturned the GC’s ruling. The judges emphasized that the Commission had set new standards for the review of state aid in the context of corporate taxation. In particular, it should be highlighted that even a tax benefit granted selectively can be classified as aid if it deviates from the general tax rules of a Member State and thereby advantages specific companies.
The CJEU determined that the assessment of the tax practice and its classification as aid was based on a comprehensive analysis of the tax implementation in Ireland. Accordingly, the judges saw sufficient indications that the contested rulings were potentially capable of providing the US corporation with a competitive advantage and thus violating state aid law. The case was referred back to the General Court of the European Union for further clarification.
Practical implications of the decision
The CJEU’s decision signals a tightening of the requirements for national tax practices within the EU internal market. For companies operating in several EU countries, this increases the risk that their tax structures may be subject to retroactive review and that any tax benefits could be challenged as state aid. The potential application to other industries and corporate structures is obvious: Banks, technology groups, and investment companies could also increasingly come under scrutiny in the future.
Significance for companies and investors
Impact on the choice of tax location
The judgment sends a clear signal to Member States that tax policy autonomy is limited where selective advantages are granted that, in the eyes of the Commission or a court, distort competition in the internal market. For internationally operating companies, it is therefore essential to regularly review their tax structures and ensure compliance with EU legal requirements. Investors must also factor in the risk of retroactive tax charges in their assessments, as recovery claims can have significant economic consequences.
Tax compliance and state aid law
Close coordination between tax structuring and compliance with state aid law is essential. Companies are well advised to document their tax structures in advance and review them for possible state aid risks. With respect to tax substance and business models, extensive preventive measures should be planned to avoid potential recovery claims.
Outlook: Further proceedings and consequences for European state aid law
The proceedings are not yet concluded. After the CJEU overturned the ruling of the General Court of the European Union and referred the case back, it remains to be seen how the further investigations and the final judicial assessment will turn out. Until the case is finally resolved, the presumption of innocence continues to apply. This legal dispute promises to set standards for distinguishing between permissible tax autonomy and unlawful state aid across the entire European area.
Source: Judgment of the Court of Justice of the European Union of 11.09.2024 (C-465/20 P)
Against the background of the CJEU’s decisions and the multifaceted impact on both companies and states, there is an increased need for advice regarding tax compliance, implementation of risk-appropriate tax structures, and the defense against potential recovery claims. If you have questions about cross-border tax structuring or aspects of European state aid law, the lawyers of MTR Legal are available nationwide and internationally.
