European Court orders Apple to pay Rs 1.18 lakh crore Irish tax dues

Apple lost a protracted legal battle with the European Union, resulting in a ruling that requires the tech giant to pay Rs 1.18 lakh crore (€13 billion) in back taxes to Ireland. This decision is part of a broader crackdown on so-called "sweetheart deals" between multinational corporations and low-tax jurisdictions.

Illegal tax benefits

The European Court of Justice (ECJ) has sided with the European Commission, led by competition chief Margrethe Vestager, who had accused Ireland of providing Apple with illegal tax benefits. The court's decision overturns previous successful challenges by both Apple and Ireland against the EU ruling. The ECJ determined that Apple had unfairly benefited from loopholes in Ireland's tax regime, necessitating the substantial back payment to the Irish government.

The 'Double Irish' scheme

A key factor in the case was Ireland's old tax regime, which allowed multinational companies to significantly reduce their overseas tax contributions. Known as the "Double Irish," this scheme involved a complex corporate structure where untaxed revenues were channelled through an Irish subsidiary and then paid to another company registered in Ireland but taxed in a tax haven like Bermuda. Apple utilised a version of this scheme until around 2014, when pressure from the EU and the U.S. led Ireland to close the loophole.

Apple expressed its disappointment with the ruling, which is final and cannot be appealed. The company contends that the European Commission is attempting to retroactively alter tax rules and is disregarding the fact that its income was already taxed in the U.S., as per international tax law.
Ireland's plan for the funds

The Irish government has not yet detailed how it will allocate the €13 billion received from Apple. It is anticipated that the funds will be deposited into a new sovereign wealth fund established last year to manage Ireland's surging corporate tax receipts. This fund will likely support the government’s plans to cut taxes and increase spending in the upcoming pre-election budget. Opposition parties have called for the tax receipts to be used to enhance spending on strained public services.

Implications for other companies

The case against Ireland was bolstered by unusually candid documents from Irish officials about their agreement with Apple. While other companies, such as Amazon and Starbucks, have faced EU scrutiny over their tax arrangements, they have largely succeeded in resisting similar back tax demands. Amazon won a case against a €250 million tax order in Luxembourg, while Starbucks and Fiat Chrysler Automobiles had mixed outcomes in their respective challenges.