Opinion of Advocate General Pitruzzella delivered on 9 November 2023.

JurisdictionEuropean Union
ECLIECLI:EU:C:2023:840
Date09 November 2023
Celex Number62020CC0465
CourtCourt of Justice (European Union)

OPINION OF ADVOCATE GENERAL

PITRUZZELLA

delivered on 9 November 2023 (1)

Case C465/20 P

European Commission

v

Ireland,

Apple Sales International,

Apple Operations International, formerly Apple Operations Europe,

Grand Duchy of Luxembourg,

Republic of Poland,

EFTA Surveillance Authority

(Appeal – State aid – Advance tax decisions (tax rulings) – Selective tax advantages)






I. Introduction

1. The present case is part of a series of somewhat extensive cases concerning the application of Article 107(1) TFEU to ‘tax rulings’. As is well known, a ‘tax ruling’ allows undertakings to apply to the tax administration for an ‘advance decision’ concerning the tax to which they will be subject and thus to obtain an official position from that administration on the application of national tax rules and assurances as to the tax treatment that will be applied to them. There is no doubt that State aid rules cannot be used to achieve surreptitiously tax harmonisation in the way of which there are political obstacles or to tackle harmful tax competition. Exploiting the advantages of disparities between tax systems does not involve the grant of aid and tax competition between States is not prohibited per se. However, the European Commission must be able to verify whether, by means of a tax measure, such as an advance decision, a Member State grants a selective advantage to a particular undertaking. In such cases, undertakings that already have significant market power per se, as is the case of Apple, also in relation to the dynamics of digital markets, which favour concentration of such power, may find themselves at an advantage in relation to competitors, which compromises the level playing field between undertakings. The purpose of the State aid rules is to avoid those consequences, which harm competition and adversely affect innovation and consumers.

2. The Commission seeks to have set aside the judgment of 15 July 2020, Ireland and Others v Commission (‘the judgment under appeal’), (2) by which the General Court annulled Commission Decision (EU) 2017/1283 of 30 August 2016 (‘the decision at issue’), (3) concerning two advance tax decisions adopted by the Irish tax authorities in relation to Apple Sales International (ASI) and Apple Operations Europe (AOE), two companies forming part of the Apple Group (together, ‘the advance decisions’).

II. Facts and background to the dispute

3. Founded in 1976 and based in Cupertino, California (United States), the Apple Group is composed of Apple Inc. and all companies controlled by Apple Inc. Its global business is structured around key functional areas centrally managed and directed from the United States (paragraph 1 of the judgment under appeal). Apple Operations International (AOI) is a fully owned subsidiary of Apple Inc. AOI fully owns the subsidiary AOE, which in turn fully owns the subsidiary ASI. ASI and AOE are both companies incorporated in Ireland, but are not tax resident in Ireland (paragraph 3 of the judgment under appeal). (4) ASI and AOE set up Irish branches (together, ‘the Irish branches’). ASI’s Irish branch is responsible for, inter alia, carrying out procurement, sales and distribution activities associated with the sale of Apple-branded products to related parties and third-party customers in the regions covering Europe, the Middle East, India and Africa (EMEIA) and the Asia-Pacific region (APAC). Key functions within that branch include the procurement of Apple-branded finished products from third-party and related-party manufacturers, distribution activities associated with the sale of products to related parties in the EMEIA and APAC regions and with the sale of products to third-party customers in the EMEIA region, online sales, logistics operations, and operating an after-sales service. AOE’s Irish branch is responsible for the manufacture and assembly of a specialised range of computer products in Ireland such as iMac desktops, MacBook laptops and other computer accessories, which it supplies to related parties for the EMEIA region. Key functions within that branch include production planning and scheduling, process engineering, production and operations, quality assurance and quality control, and refurbishing operations (paragraphs 9 and 10 of the judgment under appeal).

4. During the period covered by the decision at issue – that is to say, from 1991 to 2014 (‘the relevant period’) – Apple Inc., on the one hand, and ASI and AOE, on the other, were bound by a cost-sharing agreement (‘the cost-sharing agreement’). The shared costs concerned, inter alia, the research and development (R&D) of technology incorporated in the Apple Group’s products. Under that agreement, the parties agreed to share the costs and the risks associated with the R&D concerning intangibles following development activities connected with the Apple Group’s products and services. They also agreed that Apple Inc. remained the owner of the cost-shared intangibles, including the intellectual property (‘IP’) rights. In addition, Apple Inc. granted ASI and AOE each a royalty-free licence enabling those companies to manufacture and sell the Apple products concerned in the territory that had been assigned to them, that is to say, the world apart from North and South America (‘the IP licences’). (5) The parties to the agreement were required to bear the risks resulting from that agreement. The main risk was the obligation to pay the development costs relating to the IP rights. During the relevant period, various amendments were made to the cost-sharing agreement, in order in particular to take into account changes in the applicable regulatory framework (paragraphs 5 and 6 of the judgment under appeal).

5. In 2008, ASI concluded a marketing services agreement with Apple Inc. (‘the marketing services agreement’), in connection with which Apple Inc. undertook to provide marketing services to ASI, including the creation, development and production of marketing strategies, programmes and advertising campaigns. ASI undertook to remunerate Apple Inc. for those services by payment of a fee corresponding to a percentage of the ‘reasonable costs incurred’ in relation to those services, plus a mark-up (paragraph 7 of the judgment under appeal).

A. The advance decisions

6. By letter of 12 October 1990, addressed to the Irish tax authorities, the Apple Group’s tax advisors described the operations of Apple Computer Ltd (ACL), AOE’s predecessor, in Ireland, indicating the functions performed by that company’s Irish branch established in Cork (Ireland). They stated that that branch was the owner of the assets relating to the manufacturing activities, but that AOE retained ownership of the materials used, works in progress and finished products. By letter of 2 January 1991, the Irish tax authorities were informed of the existence of a new company, Apple Computer Accessories Ltd (ACAL), ASI’s predecessor, the Irish branch of which was described as being responsible for sourcing products intended for export from Irish manufacturers. By letter of 29 January 1991 (‘the 1991 advance decision’), the Irish tax authorities confirmed the terms proposed by the Apple Group as regards the calculation of ACL and ACAL’s chargeable profits in Ireland. ACL’s chargeable profit was calculated on the basis of a percentage of the operating costs of its Irish branch, set at 65% of those costs up to an annual amount [confidential] and at 20% in excess of that amount [confidential]. If the overall profit was less than the figure obtained using that formula, that lower figure was to be used to determine the net profit. The operating costs to be taken into consideration for that calculation were to include all operating expenses, excluding materials for resale and cost-share for intangibles charged from companies affiliated with the Apple Group. ACAL’s chargeable profit was calculated on the basis of a margin of 12.5% of the operating costs of its Irish branch (excluding materials for resale) (paragraphs 11 to 16 of the judgment under appeal).

By letter of 16 May 2007 addressed to the Irish tax authorities, the Apple Group’s tax advisors summarised their proposal for revising the method for determining the tax base of the Irish branches of ASI and AOE. In both cases, it was proposed that the chargeable profit correspond to a percentage of the operating costs, excluding costs such as sums invoiced from affiliated companies within the Apple Group and material costs. In the case of AOE’s Irish branch, it was proposed to add an amount corresponding to the IP return for the manufacturing process technology developed by that branch, corresponding to a percentage of its turnover. It was also proposed that the agreement would enter into force for both branches from 1 October 2007, be applicable for five years, be subsequently renewed on an annual basis, and be applicable to any new entities created or transformed within the Apple Group, provided their activities corresponded to those carried out by AOE and ASI. By letter of 23 May 2007 (‘the 2007 advance decision’), the Irish tax authorities confirmed their agreement with all the proposals. That agreement was applied until the 2014 tax year (paragraphs 17 to 21 of the judgment under appeal).

B. The decision at issue

7. In the decision at issue, the Commission concluded that the advance decisions, giving rise to a reduction in the tax charges that ASI and AOE would have been required to bear, had granted those companies, during the relevant period, operating aid from which the Apple Group as a whole had benefited (recitals 417 and 418). It declared that aid unlawful and incompatible with the internal market under Article 107(3)(c) TFEU (Article 1 of the decision at issue) and ordered its recovery (Article 2 of the decision at issue).

8. In Section 8.2 of that decision, in order to prove the existence of a selective advantage within the meaning of...

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