In a double boost for the European Union’s crackdown on big technology firms, Apple Inc. has lost its court battle over a €13 billion tax bill in Ireland and Alphabet’s Google lost its challenge over a €2.4 billion fine for abusing its market power.
The EU’s Court of Justice in Luxembourg backed a 2016 decision that Ireland broke state-aid law by giving Apple an unfair advantage.
And in another victory for EU competition commissioner Margrethe Vestager, the same court ruled that Google illegally leveraged its search-engine dominance to give a higher ranking to its own product listings.
Apple said it was disappointed with the decision and accused the European Commission of “trying to retroactively change the rules”. The Irish government said it would respect the ruling.
Google said it was disappointed with the ruling — and said it had made changes in 2017 to comply with the Commission’s decision.
Vestager said: “Today is a big win for European citizens and for tax justice.
“The Court of Justice confirms the decision from 2016 by the European Commission: Ireland granted Apple unlawful aid which Ireland now has to recover. And this judgement is final.
“The Court also confirms the Commission’s decision in the Google Shopping antitrust case. And also this is a final judgment.
“Let me first talk about Apple case and the judgment in itself. It is a win for the Commission. It is also a win for the level playing field in the Single Market, and for tax justice.
“At the start of my first mandate as Commissioner for Competition, aggressive tax planning was already catching public attention. Multinationals were brought before parliamentary committees in the US and the UK to explain their hidden tax arrangements.
“A seismic shift was occurring. Corporate tax avoidances were put in the spotlight by investigative journalists, as the consortium that brought us LuxLeaks.
“They revealed that some corporations paid almost no tax in Europe by abusing loopholes and asymmetries between different tax systems. And that few Member States were relying on tax rulings and aggressive tax planning arrangements to become a more attractive destination for multinational investments. This harmed other Member States and the European taxpayer.
“State aid granted in the form of fiscal advantages was and is nothing new. Still, the investigations into tax rulings led the Commission into uncharted territory. We were supported in our action by the European Parliament, civil society and European citizens who were demanding a public response. But of course, this implied that there were legal risks.
“The Commission investigated several of these tax rulings and aggressive tax planning measures under State aid rules in the Belgian Excess Profit, Amazon, Fiat, and Apple cases. There were more. These are just a few of them. Today, the Court of Justice confirmed our decision in the Apple case.
“In its decision in 2016, the Commission concluded that two Irish tax rulings constituted illegal State aid. They had artificially lowered taxes paid by Apple in Ireland since 1991. The Commission considered this to be a misapplication of Irish tax rules and ordered Ireland to recover up to 13 billion euros from Apple.
“These tax rulings attributed the bulk of taxable profits – of two Irish subsidiaries of Apple – to stateless ‘head offices’. These head offices existed only on paper. No tables, no chairs, no activities. The profits were thus not taxed anywhere.
“As an example, in 2011, one of Apple’s Irish subsidiaries recorded profits of approximately 16 billion euros. Of these, thanks to the tax rulings, only around 50 million euros were taxable in Ireland. So, this subsidiary paid less than 10 million euros of taxes in Ireland in 2011 – an effective tax rate of about 0.05% of these overall annual profits. 0.05%.
“More concretely, today the Court of Justice confirmed the Commission’s approach that the intellectual property licences held by Apple’s Irish subsidiaries and related profits should have been allocated to the Irish branches. And that Apple should have paid taxes worth 13 billion euros on all related profits in Ireland.
“This means that the recovered taxes, which have been in an escrow account for quite some years in Ireland during the ongoing court proceedings, now must be released to the Irish State.”
On the Google case, Vestager said: “Let me now turn to today’s Google Shopping judgment – which we also won.
“This judgment by the Court of Justice upholds the Commission’s Google Shopping Decision. In that Decision, the Commission found that Google favoured, within its general search results, its own comparison-shopping service ‘Google Shopping’, over those services provided by its rivals.
“The Court of Justice confirms that, in certain circumstances, the favourable treatment of its own services by a dominant company can be a breach of Article 102 TFEU.
“This important judgment validates the Commission’s approach to such practices. We call them “self-preferencing”.
“Dominant companies, as any other companies, are of course free to innovate in all fields, but in doing so, they should compete on the merits. However, they cannot lean on the competitive advantage that they hold because of their market power. Going forward, the Commission will make sure that the principles enshrined in this judgement – which is now final – are upheld for the benefit of all European consumers.
“The Google Shopping case is a landmark in the history of regulatory actions against big tech companies. It was one of the first significant antitrust cases brought by a competition agency against a major digital company. And I think this case marked a pivotal shift in how digital companies were regulated and also perceived.
“Before this case, the prevailing belief was that digital companies should be left to operate freely. They were seen as innovators driving positive change and growth. However, the European Commission’s decision to investigate and subsequently fine Google for abusing its market dominance in the comparison-shopping service sector challenged this notion.
“This case was symbolic because it demonstrated that even the most powerful tech companies could be held accountable. No one is above the law. It inspired regulators and policymakers worldwide to scrutinize the activities of digital giants more closely. The Google Shopping case set a precedent and paved the way for further regulatory actions, including the Digital Markets Act (DMA) of the European Union.
“In essence, the Google Shopping case was a catalyst for change, inspiring a more vigilant and proactive approach to regulating big tech and ensuring a fairer digital marketplace.”