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US loses bid to intervene in EU Apple state aid case

The US government has lost a bid to intervene in an EU case concerning an investigation into Apple's tax affairs.19 Dec 2017

The European Commission said in August 2016 that Ireland must recover the unpaid taxes from Apple after it concluded that the country granted undue tax benefits to Apple between 2003 and 2014. The tax benefits constituted illegal state aid, the Commission said. However, Apple has challenged that decision before the EU's General Court.

Earlier this year the US government applied to submit its views to the court as an intervener in the case. It argued that its intervention should be permitted because US tax revenues would be affected and because the decision could harm bilateral tax treaty negotiations with EU member states as well as efforts to develop transfer pricing rules within the OECD framework.

However, the EU's General Court last week issued an order rejecting the US government's application.

The General Court concluded that the US government had failed to establish "an interest in the result of the case" under EU law.

State aid expert Caroline Ramsay of Pinsent Masons, the law firm behind Out-Law.com said: "This is an interesting decision although not entirely unexpected. It is understandable that the US wished to have some representation in these transfer pricing cases as the implications for the American Internal Revenue Service in terms of claims for foreign tax credit relief, in the event that Apple and Ireland lose the appeal, could be very significant. That said, the EU court has now made it clear that intervening rights extend only so far as other EU member states and other directly affected parties."

"Unlike most other state aid investigations, the international tax transfer pricing investigations which the European Commission is conducting have tax implications on a global scale and which go far beyond the boundaries of the European Union. The fact that the EU court rules are not equipped to support these global interests is perhaps indicative of the fact that the European Commission is over-reaching, something which it has been accused of on many occasions," Ramsay said.

In 2016 Robert Stack, the US Treasury official then in charge of international tax policy, claimed the European Commission was disproportionately targeting US companies in its state aid challenges.

The Commission's decision in the Apple case followed a three year investigation into two rulings issued by Ireland in favour of two Apple group companies: Apple Sales International (ASI) and Apple Operations Europe (AOE). These companies were both incorporated in Ireland and, although they did not have any taxable presence in the US or any other tax jurisdiction, they were not treated as Irish tax resident because Irish law at the time regarded them as US tax resident. The Irish law has since been amended and Apple has now changed its operating structure.

The tax rulings concerned the method of allocation of profit to the Irish branches of these companies. The rulings meant that almost all of the sales profits recorded by the two companies were internally attributed to a head office of ASI that the Commission said "existed only on paper and could not have generated such profits". The profits allocated to the head office were not subject to tax in any country and as a result, the Commission said Apple only paid an effective tax rate of between 0.005% and 1%.