BRUSSELS: A European Union court on Wednesday delivered a hammer blow to the bloc’s attempts to rein multinationals’ ability to strike sweetheart tax deals with individual EU countries when it ruled that Apple does not have to pay 13 billion euros ($15bn) in back taxes to Ireland.

The EU Commission had claimed in 2016 that Apple had struck an illegal tax deal with Irish authorities that allowed it to pay extremely low rates. But the EU’s General Court said on 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 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 one 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 ruling can only be appealed on points of law and the Commission Vice President Margrethe Vestager said she was studying the judgment and will “reflect on possible next steps.

The Irish government welcomed the ruling, saying “there was no special treatment provided to the US company. Apple also said it was pleased by the decision, arguing that the case is not about how much tax it pays, but in what country. Apple CEO Tim Cook had earlier called the EU demand for back taxes total political crap.

The defeat is especially stinging for 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 US.

Despite the setback, she vowed to carry on the fight. “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,” she said.

Published in Dawn, July 16th, 2020