Reuters. FILE PHOTO: An Apple logo printed in 3D can be seen in front of an Irish flag in this illustration

By Foo Yun Chee and Padraic Halpin

BRUSSELS/DUBLIN (Reuters) – The dispute between Apple (NASDAQ:) and EU competition regulators intensifies Wednesday as Europe’s second-highest court rules on whether Ireland must pay €13 billion ($15 billion) in tax arrears, a key element in the EU’s crackdown on concessionary tax deals.

In its order four years ago, the European Commission declared that Apple had benefited from illegal state aid through two Irish tax decisions that artificially reduced its tax burden for more than two decades – up to 0.005% in 2014.

The defeat of Margrethe Vestager, European Commissioner for Competition, could weaken or delay the ongoing cases against the Ikea and Nike (NYSE:) agreements with the Netherlands, as well as the Huhtamaki agreement with Luxembourg.

Vestager, who has made tax repression a centrepiece of his mandate, saw the same court last year reject his claim for payment by Starbucks (NASDAQ:) of €30 million in Dutch tax arrears. In another case, the court also rejected its ruling against a Belgian tax regime applicable to 39 multinationals.

The Apple dispute is seen by some analysts as a losing situation for Ireland, which has appealed the Commission’s decision alongside the iPhone manufacturer.

While €14 billion – including interest – would go a long way to filling the coronavirus-shaped hole in the state’s finances, Dublin is seeking to protect a low tax regime that has attracted 250,000 multinational employers.

If Ireland’s appeal is successful, the government will be ridiculed by opposition parties for not taking the money, which could cover at least half of a budget deficit that is expected to reach 10% of GDP this year.

If Ireland loses, the government will be castigated by the same politicians for making the appeal. A decision in favour of the Commission could also raise questions about the application of the Irish tax code at a sensitive time, when new global rules for the taxation of digital giants are being debated.

A defeat could also harm Ireland’s ability to attract investment, although the promotional blitz undertaken after the Commission’s 2016 decision appears to have worked. The number of people employed by multinationals such as Apple, Facebook (NASDAQ:) and Google (NASDAQ:) has increased by 25%, representing one in ten Irish workers.

For Apple, a defeat would be a hard blow, but a manageable one given that its liquidity exceeded $190 billion at the end of its second fiscal quarter.

The cases are T-778/16 Ireland v Commission and T-892/16 Apple Sales International and Apple Operations Europe v Commission. The defeated party can appeal on points of law to the EU Court of Justice, Europe’s highest court.

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2020-07-14