On November 9, 2023, Advocate General Pitruzzella delivered his Opinion,[1] proposing that the Court of Justice uphold the appeal brought by the European Commission (“Commission”)[2] against the General Court judgment of July 15, 2020,[3] which annulled the Commission decision of August 30, 2016, finding that the Republic of Ireland (“Ireland”) had granted €13 billion in undue tax benefits to Apple Inc (“Apple”).[4]  The Commission had found that Ireland granted a selective advantage to Apple through two individual tax decisions (“tax rulings”[5]) adopted in 1991 and 2007, addressed to the Irish-based subsidiaries, Apple Sales International (“ASI”), and Apple Operations Europe (“AOE”) (together, “the Irish branches”).  As AG Pitruzzella pointed out, this case is part of a “series of somewhat extensive cases concerning the application of Article 107(1) TFEU to tax rulings.”[6]

The Commission Finds that Ireland Granted Unlawful and Incompatible State Aid to Apple

In 2016, the Commission determined that the two Irish tax rulings addressed to the Irish branches granted a selective advantage to Apple, hence constituting unlawful and incompatible State aid under Article 107(1) TFEU, and ordered Ireland to recover from Apple €13 billion with interest (€14.3 billion in total).  In particular, the Commission found, first, that the Irish tax authorities erred in accepting Apple’s unsubstantiated claim that its IP licenses should be allocated for tax purposes outside of Ireland to the head offices of the Irish branches (which were not taxed anywhere), which led to the Irish branches’ annual chargeable profits departing from a market-based outcome in accordance with the so-called arm’s length principle (the “primary line of reasoning”).[7]  Second, the Commission found that even if the Irish tax authorities had been correct in accepting Apple’s claim, the outcome would nevertheless have been the same because the tax rulings approved a profit allocation based on inappropriate methodological choices, which led to a reduction in Apple’s corporate tax compared to undertakings in a similar situation (the “subsidiary line of reasoning”).[8]  In the alternative, the Commission concluded that since the Irish tax provisions did not lay down any objective criteria for allocating profits to different parts of a non-resident company, the broad discretion applied in the tax rulings necessarily conferred a selective advantage on Apple in breach of EU State aid rules (the “alternative line of reasoning”).[9]

The General Court Annuls the Commission Decision

In 2020, the General Court annulled the Commission’s decision on the ground that the Commission did not prove, to the requisite legal standard, that the Irish tax rulings had granted a selective advantage in the sense of Article 107(1) TFEU to Apple.  In particular, the General Court found that the Commission did not prove that (i) Apple’s IP and associated profits should have been attributed to Apple’s Irish branches, as opposed to the head offices (primary line of reasoning), (ii) insufficient profits were allocated to Apple’s Irish branches (subsidiary line of reasoning), and (iii) the Irish tax rulings involved the exercise of discretion (alternative line of reasoning).[10]  The theme underlying the General Court’s three-fold finding was that the Commission did not positively prove that the Irish tax rulings had granted an advantage to Apple, particularly insofar as the Commission: (i) presumed that, since the head offices of ASI and AOE had no presence or employees, they could not have controlled the relevant IP, and therefore all associated profits must be allocated by default to the Irish branches (exclusionary approach); (ii) pointed out methodological defects without actively showing that the chosen method effectively led to a reduction in the tax burden; and (iii) presumed that the discretion allowed by the Irish tax rules necessarily granted an advantage.

The Commission appealed the ruling to the Court of Justice on September 25, 2020.

Advocate General Pitruzzella’s Opinion: Victory for the Commission in Historic Apple Case?

Regarding the primary line of reasoning, Advocate General Pitruzzella opined that the General Court made a number of fundamental legal and methodological errors, particularly around the attribution of IP licenses and related profits for corporate tax purposes.  Principally:

  • First, the General Court misinterpreted the Commission decision.  Contrary to the General Court’s judgment, the Commission did not find that the absence of employees or physical presence in the head offices of the Irish branches, in itself, entailed that the head offices could not have controlled the relevant IP, and therefore that all associated profits must be allocated by default to the Irish branches.[11]  The Commission also relied on the “multiplicity and centrality of [the functions and risks] assumed by the [Irish] branches” in order to positively attribute the IP licenses and related profits to the Irish branches.[12] 
  • Second, the General Court contradicted itself in finding that the Commission had (i) not attempted to show that the allocation of the IP licences to the Irish branches followed from the activities actually carried out by the branches and, at the same time; and, (ii) identified the functions performed by those branches which, in its view, justified such an allocation.[13]
  • Third, Advocate General Pitruzzella noted that the Irish tax provisions relating to the taxation of non-resident companies (Section 25 of Tax Consolidation Act 1997)[14] did not specify exactly how the profits had to be attributed to the Irish branches.[15]  As such, the parties disagreed over the method for determining the taxable profits of a foreign company in Ireland: (i) the Commission considered the allocation of assets, functions, and risks within the corporate group; whereas, (ii) Ireland favored considering actual activities; and, (iii) Apple argued that the key factor was IP control.  Advocate General Pitruzzella sided with the Commission’s interpretation, i.e., the profits should be attributed to entities within a corporate group based on the allocation of assets, functions, and risks.[16]  This method is the only way, according to the Advocate General, to identify, in line with the wording of Section 25 of Tax Consolidation Act 1997, the “trading income arising directly or indirectly” from the branch and from property or rights “used by, or held by or for, the branch […]”.[17]

Regarding the subsidiary line of reasoning, notably, Advocate General Pitruzzella rejected the Commission’s argument that, in demonstrating the existence of an advantage, it was merely required to demonstrate that the tax rulings contained methodological errors which established that it was “plausible” that the rulings had led to a reduction in the tax liability of the Irish branches (plausibility burden of proof).[18]  Nevertheless, the Advocate General found that the Commission had sufficiently demonstrated that the tax rulings actually granted an advantage to Apple, insofar as they accepted a method of calculation that contained “fundamental errors” that “necessarily[led] to an undervaluation of those profits compared to an arm’s length result and are therefore inherently or manifestly capable of reducing the tax burden” of the Irish branches.[19]

Advocate General Pitruzzella chose not to assess the alternative line of reasoning.[20]

In light of the above, the Advocate General advised the Court of Justice to set aside the General Court’s judgment and send the case back to the General Court for a new ruling on the merits.[21]

Final Remarks

Although the Court of Justice is not bound by Advocate General Pitruzzella’s Opinion, if followed, it would mark a significant vindication for the Commission on one of its key priorities:  upholding its pursuit of State aid rules to combat preferential tax agreements.

[1]             Commission v. Ireland and Others (Case C-465/20 P), Opinion of Advocate General Pitruzzella, EU:C:2023:840 (the “Opinion”).

[2]             Appeal brought on September 25, 2020 by European Commission against the judgment of the General Court delivered on July 15, 2020 in Ireland and Others v. Commission (Joined Cases T-778/16 and T-892/16) EU:T:2020:338.

[3]             Ireland and Others v. Commission (Joined Cases T-778/16 and T-892/16) EU:T:2020:338 (the “GC Judgment”).

[4]             Commission Decision C (2017) 5605 of August 30, 2016 (State Aid 2014/C (ex 2014/NN)), OJ 2017 L 177/1 (the “Commission decision”). See also Commission Press Release IP/16/2923, “Ireland gave illegal tax benefits to Apple worth up to €13 billion,” August 30, 2016.

[5]             “The function of a tax ruling is to establish in advance the application of the ordinary tax system to a particular case in view of its specific facts and circumstances,” Commission Notice on the notion of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the European Union, OJ 2016 C 262/2, para. 169. “A ‘tax ruling’ allows undertakings to apply to the tax administration for an ‘advance decision’ concerning the tax to which they will be subject and thus to obtain an official position from that administration on the application of national tax rules and assurances as to the tax treatment that will be applied to them”, Opinion, para. 1.

[6]             Opinion, para. 1.  DG Competition set up a Task Force on Tax Planning Practices in summer 2013 to follow up on public allegations of favorable tax treatment of certain companies (in particular in the form of tax rulings).  In December 2014, the Commission sent an information inquiry to all Member States.  Since then, the Commission has adopted a number of decisions finding that the United Kingdom, Belgium, Luxembourg, and Ireland had granted unlawful and incompatible State aid through tax rulings (overview available here).  These cases have been followed by extensive litigation before EU Courts, with mixed results for the Commission.

[7]             Commission decision, paras. 265–321.  The purpose of the arm’s length principle is to ensure that transactions between integrated group companies are treated for tax purposes by reference to the amount of profit that would have arisen if the same transactions had been carried out by non-integrated standalone companies (Opinion, para. 10; Commission decision, paras. 252 and 253).

[8]             Commission decision, paras. 325–360.

[9]             Commission decision, paras. 369–403.

[10]            For a detailed analysis of the GC Judgment, see our previous Alert Memorandum of July 24, 2020, “EU General Court Strikes Down Commission’s €14 billion State Aid Decision against Apple and Ireland,” available here

[11]            Opinion, paras. 23–30.

[12]            See idem

[13]            Opinion, para. 35.

[14]            Under Section 25 TCA 97, a non-resident company is not to be charged corporation tax in Ireland, unless it carries on a trade in Ireland through a branch or agency.  If it does so, that non-resident company is to be taxed “on all of its trading income arising directly or indirectly from the branch or agency and from the property or rights used by or held by or for the branch or agency […].”

[15]            Opinion, para. 17.

[16]            Opinion, para. 58.

[17]            Opinion, para. 57.

[18]            Opinion, paras. 99 and 103.

[19]            Opinion, para. 104.

[20]            Opinion, para. 10.

[21]            Opinion, paras. 137–138.