The Judgment in Apple's Case Represents a Modest Triumph Against Widespread Tax Fraud
Historical Setback for Apple as EU Wins Longest Cartel Case, Highlighting its Power Against Corporate Tax Evasion
As European Commissioner Margrethe Vestager prepares to retire from politics at the end of November, she can look back on a significant milestone in her career – the landmark European Court of Justice (ECJ) decision against tech giant Apple, a case that has spanned nearly a decade. The ECJ's judgments in Google and Apple cases further bolster Vestager's crusade against the market power and tax evasion practices of tech giants and international corporations. This Apple verdict serves as a triumphant note for Vestager before her departure.
The decision marks the culmination of Vestager's tireless efforts to challenge Apple's dominance, dating back to when she deemed Ireland's secret tax agreements with Apple as unlawful state aid and ordered Apple to repay €13 billion. The ECJ has now overturned Apple's successful appeal against the initial decision, handing Vestager the final verdict: The Irish government's tax advantages, which allowed Apple to pay less than 1% tax on its profits between 2003 and 2014, were unlawful distortion of competition.
This brings an end to the longest cartel dispute in history. Vestager hailed the ruling as "a great victory for Europe's citizens and tax justice." Legally, there is no room for appeal. For Vestager, it's a fitting farewell gift. But for the EU, it's just the start. The Apple tax saga demonstrates the necessity of political action to counteract the self-enrichment of global internet giants, an area where many governments often fall short. As a result, tech giants have long shifted their attention to new tax havens.
Apple: A Large Taxpayer Abroad, Not in Europe
Not surprisingly, Apple expressed "disappointment" with the decision. The company asserted, "We pay all the taxes we owe, wherever we operate, and there has never been a special deal." Yet, it's also true that while Apple is among the biggest taxpayers in the U.S., it has skillfully managed to pay virtually no taxes on its European profits for decades using its Irish "iTricks."
In fact, the Irish loopholes enabled Apple to enjoy countless billions in tax-free profits since as early as 2013, exploiting the global undercutting race among governments for tax revenue. Despite consistently selling millions of iPhones and apps to customers across Europe every year, Apple effectively avoided paying any substantial taxes in the EU by channeling profits through legal patent bookings to two shell companies in Cork and then to Caribbean tax havens.
Dublin's Obfuscated Legal Loopholes Fuel Apple's Profit Magic
Apple's tax-saving strategies owed much to the convoluted legal loopholes of the Dublin government. Although the Irish government tried to capture some scraps of the international tech giants' tax revenue in the global competition, the “Double Irish” trick allowed companies like Apple to storage vast sums in Caribbean tax havens – essentially tax-free. The International Monetary Fund (IMF) estimated some time ago that around 40% of global investments serve mainly for tax evasion, not actual productive purposes.
Multinationals Have Moved On to New Pastures
Ironically, even Ireland resisted collecting the lost tax revenue that Brussels demanded for years. The situation points to a struggle less about law than about politics. Vestager's back tax demand can be seen as a defensive legal maneuver against years of political inaction in the EU countries regarding the gross tax evasion. Back then, EU commissioner Vestager attempted to compensate for the government failures through competition policy.
In the end, it wasn't court rulings that drove the change. Rather, Dublin abolished the "Double Irish" in 2015 under international pressure due to Brussels’ confrontation with Apple. For too long, not only tax havens like Ireland but also Malta, Cyprus, the Netherlands, Luxembourg, and others blocked stricter and uniform rules.
Recently, around 140 countries pledged a global minimum tax of 15% for multinational corporations, including tax-friendly EU countries like Ireland, Hungary, and Estonia. However, Nobel laureate Joseph Stiglitz warned in a report at the end of last year that the groundbreaking agreement had been severely weakened by several loopholes and special rules, undermining its intended effect. The expected revenue from the global minimum tax would represent less than 5% of the worldwide tax revenue of multinational corporations, suggesting that powerful entities still manage to sidestep their obligations.
The EU's victory in the long-running Cartel Case against Apple, overseen by the Court of Justice, is a significant achievement for European Commissioner Margrethe Vestager before her retirement. The Court's ruling declared the Irish government's tax advantages for Apple as unlawful distortion of competition, effectively ending Apple's use of Dublin's obfuscated legal loopholes to avoid paying taxes in Europe.
