In 2016, the European Commission argued that the Irish tax authorities, as a result of its tax rulings, allowed the Irish permanent establishments of two Apple companies unlawful State aid in the amount of €13 billion and ordered the Irish government to reclaim such advantage. Further to the appeal of Apple as well as the Irish government, the EU General Court now ruled that the European Commission failed to show a selective advantage had been granted and therefore denied its State aid claim.
Transfer Pricing takeaways
In our view, the judgment provides the following takeaways from a transfer pricing perspective.
- Legal approach
The EU General Court, with reference to the OECD Authorized Approach, argued that the fact that formal decisions as regards Apple IP were taken by the board of directors at the head office was sufficient to allocate profits associated with that IP to that head office (and therefore not to the Irish permanent establishments).
- Burden of proof
The European Commission’s argumentation that errors in the transfer pricing methodology applied by Apple constitute a selective advantage failed because it did not show that these alleged errors resulted in non-arm’s length results (i.e. an insufficient profit allocation to the Irish permanent establishments).