A European Union court on Wednesday delivered a hammer blow to the bloc’s attempts to rein in sweetheart tax deals between multinationals and individual member countries when it ruled that technology giant Apple does not have to pay 13 billion euros (USD 15 billion) in back taxes to Ireland.

The EU Commission had claimed in 2016 that Apple had an illegal tax deal with Irish authorities that allowed it to pay extremely low rates. But the EU's General Court said Wednesday that ”the Commission did not succeed in showing to the requisite legal standard that there was an advantage.”

"The Commission was wrong to declare” that Apple “had been granted a selective economic advantage and, by extension, state aid,” said the Luxembourg-based court, which is the second-highest in the EU. The ruling can only be appealed on points of law.

The EU Commission had ordered Apple to pay for gross underpayment of tax on profits across the European bloc from 2003 to 2014. The commission said Apple used two shell companies in Ireland to report its Europe-wide profits at effective rates well under 1 percent.

In many cases, multinationals can pay taxes on the bulk of their revenue across the EU's 27 countries in the one EU country where they have their regional headquarters. For Apple and many other big tech companies, that is Ireland. For small EU countries like Ireland, that helps attract international business and even a small amount of tax revenue is helpful for them. The net result, however, is that the companies often end up paying very low tax.

The Irish government welcomed the ruling. “Ireland has always been clear that there was no special treatment provided” to the U.S. company, it said in a statement. “Ireland appealed the Commission Decision on the basis that Ireland granted no state aid and the decision today from the Court supports that view.”

Apple CEO Tim Cook has called the EU demand for back taxes “total political crap.”

The defeat is especially stinging for EU Vice-President Margrethe Vestager, who has campaigned for years to root out special tax deals. Trump has referred to her as the “tax lady” who “really hates the U.S.”

The Eurodad network of 49 civil society organisations said that the ruling showed how tough any tax policy remains. “”If we had a proper corporate tax system, we wouldn’t need long court cases to find out whether it is legal for multinational corporations to pay less than 1 percent in taxes,” said Tove Maria Ryding of Eurodad.

Even though taxation remains under the authority of its member countries, the EU is seeking to create a level playing field among the 27 nations by making sure special deals including ultra-low tax rates with multinationals are weeded out.

The ruling comes at a time when tax income for EU nations is especially welcome because of the economic impact of the coronavirus pandemic. At a time when cash-strapped households are suffering, the EU wants to make sure multinationals making profits on the continent pay their fair share, too.

Meanwhile, the EU Commission was to unveil new plans to combat tax fraud only hours after the ruling in Luxembourg.

“In times like these when we are passing multibillion-euro economic stimulus packages, we cannot afford to waste a single cent in tax revenue“, said EU legislator Markus Ferber of the Christian Democrat EPP Group.

First Published:Jul 15, 2020 4:20 PM IST