In 14 pleas published in the Official Journal of the European Union Apple said the Commission made fundamental errors in failing to recognise that Apple's profit-driving activities were controlled and managed in the US, and that the profits from those activities were attributable to the US, not Ireland.
The Commission's decision violated the principles of legal certainty and non-retroactivity, and violated legal certainty by ordering recovery under an unforeseeable interpretation of state aid law, Apple said.
The 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 Commission's decision 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%.
In its pleas Apple said that, as non-resident Irish companies, ASI and AOE were only liable to Irish corporation tax on ‘chargeable profits’ attributable to activities performed by their Irish branches. The Irish branches carried out only routine functions and were not involved in the development and commercialisation of Apple intellectual property which drove profits, it said.
Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com, said: "One of Apple’s main arguments is that the profits from its activities were attributable to the US, and not Ireland, because the development and commercialisation of its intellectual property was controlled and managed in the US. This would not be such a surprising argument if it were not for the fact that Apple’s structure led to the profits being taxed nowhere."
"Apple must be confident that its structure is robust as far as US tax is concerned, as paying US tax on all these profits would be significantly more costly than the €13bn the Commission says is due to Ireland," Self said.
Ireland said in December that it believed the Commission had exceeded its powers and interfered with national tax sovereignty, as it too attempted to overturn the tax ruling. The Commission had "misunderstood the relevant facts and Irish law", it said.
"Ireland did not give favourable tax treatment to Apple - the full amount of tax was paid in this case and no state aid was provided. Ireland does not do deals with taxpayers," the Irish government said at the time.
Ireland went on to miss the January deadline to collect the €13bn and put it in an escrow account. European Union tax commissioner Margrethe Vestager acknowledged that the deadline had passed, but said the payment is "complex" and Ireland is still calculating how much is due.
The Commission does not have direct authority over national direct tax systems. However, under EU rules it is unlawful for any EU country to give financial help to selected companies in a way which would distort fair competition. If a tax ruling contravenes market principles so as to confer a selective advantage, it could be considered to be state aid.
In June 2014 the European Commission announced in-depth investigations into whether tax rulings issued to Apple by Ireland, Starbucks by the Netherlands and Fiat Finance and Trade by Luxembourg amounted to "unjustifiable" state aid. In October 2014 a similar investigation was announced into Amazon in Luxembourg and in December 2015 an investigation was launched into 'double non-taxation' of McDonalds in Luxembourg.
In October 2015 it decided that the rulings provided to Fiat and Starbucks constituted unlawful state aid and that the countries would have to recover €20-to-€30 million from each company to claw back the benefits of the state aid received. The Amazon and McDonald's investigations are continuing.