EU court hears arguments from Ireland, Apple in $14B tax fraud case

The Irish government and Apple denied in court Tuesday accusations that the government provides illegal state aid and tax benefits to the iPhone maker, saying the European Union’s $14.3 billion fine “defies reality and common sense.”

Ireland and Apple denied accusations that the country provides tax benefits to the maker of the iPhone. Photo by Stephen Shaver

EU officials argue that Apple benefits from Irish tax rulings that reduced the company’s payments over the last two decades. In 2016, the EU ordered Apple to pay $14.3 billion in back taxes. The Irish government and Apple said the disparity is the result of a mismatch between Irish and U.S. tax systems.

“Ireland has been the subject of entirely unjustified criticism,” former attorney general Paul Gallagher told the EU General Court. “It is the commission that should be criticized. The commission’s conclusion is astonishing.”

The case is being heard in the General Court in Luxembourg, the second highest court in the EU. A ruling could come in the next few months. The losing party will likely appeal to the EU Court of Justice, which could drag the case out for several years.

For European competition commissioner Margrethe Vestager, the Apple case is the latest in the series of crackdowns against tax havens and sweetheart deals.

Apple lawyer Daniel Beard said Vestager’s case is flawed because the iPhone, the iPad, the App Store and other Apple products and services and key intellectual property rights were developed in the United States.

The Irish branches in question are called Apple Sales International and Apple Operations Europe.

“The [Irish] branches’ activities did not involve creating, developing or managing those rights,” Beard said. “Based on the facts of this case, the primary line defies reality and common sense,” Beard said. “The activities of those two branches in Ireland simply could not be responsible for generating almost all of Apple’s profits outside the Americas.”

Apple is the largest global taxpayer worldwide and paid taxes to the United States on profits from Ireland. Apple expects to earn $61 billion in the third quarter.

“Some may want to change the international tax system,” Beard said. “But that is a tax law issue, not state aid.”

Lawyer Maurice Collins, who also represents Ireland, said the EU commission has shifted the focus of the case for several years before its 2016 order.

ByNicholas Sakelaris