The European Union’s second-highest court on Wednesday reversed a European Commission (EC) ruling alleging that Ireland had failed to collect €13 billion ($14.9 billion) in taxes from Apple Inc. (NASDAQ: AAPL).
The General Court of the European Court of Justice ruled that the EC did not show that Apple received assistance from Ireland and that the world’s most valuable company should have paid more taxes on its EU earnings between 1991 and 2007.
It’s fair to say that Apple got a good deal from Ireland. In 1991, the government set the company’s tax rate in the country to 0.005%. The government had concluded that intellectual property rights held by Apple’s Irish subsidiary were not taxable in the country. The EC’s position was that the income was taxable in Ireland because the Irish subsidiary had incorrectly granted the tax break to Apple.
In late 2016, Margrethe Verstager, head of the EC’s competition division, gave Apple and the Irish government until January 3, 2017, to pay up. Ireland and Apple appealed to the General Court, while agreeing to fund a €13 billion escrow fund.
The EC argued that the tax rulings between Apple and the Irish government “constituted State aid unlawfully put into effect by Ireland,” according to the General Court’s announcement of the decision.
In its ruling, the General Court said that the EC “was wrong to declare ASI [Apple Sales International] and AOE [Apple Operations Europe] had been granted a selective economic advantage and, by extension, State aid.” The court also noted that the EC failed to prove that the Irish tax rulings “were the result of discretion exercised by the Irish tax authorities.”
The €13 billion escrow fund is likely to remain where it is pending an appeal from the EC. Verstager, now the EC’s executive vice president, said in a statement that the General Court’s ruling “confirmed” that EU states must establish their own state tax laws with an eye toward EU law. Verstager also noted that the ruling confirmed the EC’s approach to determining whether a measure is “selective.”
Investors pushed Apple stock up by about 1.9% in Wednesday’s premarket session to $395.46, in a 52-week range of $192.58 to $399.82. The consensus 12-month price target on the stock is $350.33.