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Archive for July 15th, 2020

The Apple Judgment in Context (Cases T-778/16 and T-892/16)

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The General Court annulled earlier today the Commission’s Apple decision (the full Judgment is available here). This has come as a surprise for many, perhaps not so much to those of us who attended the oral hearing (see here). It may also not have been much of a surprise for readers of this blog following the latest trends in EU judicial review (see below).

This Judgment cannot be examined in isolation. The reasons for, and the implications of, this annulment can be better understood by examining the case within a wider context:

The context of other Judgments on tax rulings. The identity of the company affected and the amounts at stake made this the most visible of the recent cases in which the Commission has challenged tax rulings under State aid rules. That increases the PR repercussions of the defeat. From a strictly legal standpoint, however, the Apple case is not necessarily more relevant than the Fiat and Starbucks Judgments rendered in September 2019 (we commented on those here).

The Apple ruling, like those in Fiat and Starbucks, confirms that it is possible for the Commission to target tax rulings under State aid rules. All three cases bypassed the thorny issue of selectivity and focused the debate on the existence of an advantage. All three cases recognize that the Commission is entitled to rely on the arm’s length principle and on the OECD’s work to determine the existence of an advantage by reference to ordinary taxation. The three Judgments send a consistent message that the Commission’s policy is not wrong as a matter of principle, but that the devil lies in the details, and that it is for the Commission to assess those details.

The context of the wider case law on fiscal State aid. My more detailed technical views on that are outlined here.

The context of EU judicial review. The Apple Judgment will attract more attention than other annulments, but in reality, it is not in any way groundbreaking from a legal standpoint. The reasons, and the reasoning, leading to today’s annulment are exactly the same as the one that has led to the recent annulment of other decisions, including in Frucona Kosice, FC Barcelona, Real Madrid, Naviera Armas, Valencia and Elche cases, among others. In recent years the Courts have consistently insisted on the Commission’s obligation to actively and impartially gather and assess all the relevant evidence in relation to issues where the burden of proof is incumbent upon it. It was all there. Apple had probably won before entering the courtroom.

You might think this is easy to say in retrospect, but we already anticipated all of this here and here. At the time, we said that “it won’t be difficult for the Commission to continue to win cases if it incorporates this logic into its day-to-day. If that does not happen, we are likely to witness a series of annulments based on this logic (…) My bet is that I will be making a few future cross references back to this prediction”. Here’s one more cross reference, probably not the last one.

A paradoxical result? Our previous post on Fiat and Starbucks noted that “paradoxically, the Commission [might have] to do a greater job when Member States do worse. In other words, the Commission cannot simply assume that because the Member State acted in a seemingly arbitrary manner the outcome was wrong.  As Vice President van der Woude noted at the Apple hearing last week, one cannot fully exclude that there may have been a happy coincidence. The message, again, is that nothing is evident and that the Commission cannot take things for granted”.

In the case of the Apple ruling, in sum, the Commission took the view that the existence of a seemingly arbitrary process created a presumption of a selective advantage (i.e. a derogation from normal market conditions), which would place the evidentiary burden on Ireland/Apple to show that the advantage did not exist. Today’s Judgment does not hide the Court’s dislike of that particular negotiation process, but considers that this does not enable the Commission to simply presume the existence of an advantage. The Court’s press release itself states that “the General Court regrets the incomplete and occasionally inconsistent nature of the contested tax rulings”, only to then clarify that “the defects identified by the Commission are not, in themselves, sufficient to prove the existence of an advantage”.

3 Lessons from the Judgment.

1) The Apple Judgment again shows that the EU Courts are ready to give the Commission room for maneuver, provided that it does a thorough job in its assessment of all the relevant circumstances when it bears the burden of proof;

2) Very often, it’s all about the burden of proof. Infringements are established, not presumed. And be mindful that this is a case involving an administrative infringement by Ireland, not Apple; these principles apply even with greater strength in relation to quasi-criminal infringements by undertakings;

3) The EU system of administrative enforcement combined with independent judicial review works, regardless of the identity and nationality of the companies involved and of the economic or political interests at play.

What now? There is nothing humiliating in losing cases; that is a natural part of the work of any authority. The Judgment is more of a problem for the Commission’s PR policy than it is for the Commission’s wider strategy regarding tax rulings.  There is no legal obstacle for Commission to challenge tax rulings under State aid rules; it only needs to do its work thoroughly and with no shortcuts, no matter how tempting or seemingly justified. The Commission may even win other pending cases on this very same area. My bet is also that the chances of success of a Commission appeal would may not be high (an unlikely re-run of the investigation would arguably offer higher chances of success, but resulting in less eye-catching figures).

Like what has (and will) happen in antitrust cases, this defeat may however be used to push for regulation as an alternative. Like in the case of antitrust, this is even if there is arguably no real blind spot under the Commission’s enforcement powers. Unlike in the case of antitrust, regulation in the tax domain might be more desirable.

[Disclosure: I have nothing to disclose. I represented companies in some of the precedents quoted in the Judgment, and I currently represent a large number of companies in dozens of fiscal State aid cases pending before the EU Courts. All of those cases are unrelated to the issues raised in the Apple case]

Written by Alfonso Lamadrid

15 July 2020 at 8:35 pm

Posted in Uncategorized