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On September 10, 2024, the Court of Justice of the European Union supported the European Commission's findings that Ireland granted Apple unlawful State Aid under Article 107(1) Treaty on the functioning of the European Union. The final ruling requires Ireland to pay back over EUR 13 billion. For multinational corporations, this case highlights the importance of evaluating the alignment of their current approach to tax with both national laws and international regulations.
This article is written by Hendrik Bastiaans ([email protected]) and Pauline Cobo ([email protected]). Hendrik and Pauline are part of RSM Netherlands with a focus on international corporate tax and tax governance.
Overview of the Apple State Aid Case
The dispute began in 2016 when the European Commission argued that Ireland offered Apple selective tax advantages, allowing the company to reduce its tax payments on profits generated across the EU. Apple structured its operations through two Irish subsidiaries, which benefited from Ireland’s tax rules that the Commission deemed to be incompatible with EU State Aid regulations. The CJEU’s 2024 ruling supported the Commission's position, finding that Apple’s tax arrangements provided an economic benefit that other companies did not receive under the same conditions. While Ireland’s tax policies complied with domestic rules, the EU court determined that the arrangements breached European State aid law. This decision emphasizes the importance of understanding how European regulations can take precedence over national policies in specific circumstances. Apple’s tax strategy involved the use of Ireland’s tax laws to allocate profits, resulting in lower tax liabilities. This practice, while in accordance with Irish law, ultimately became the subject of the State Aid investigation.
The Court of Justice ultimately sided with the European Commission, concluding that the tax structure of Apple Inc. did not comply with European Union regulations, despite complying with Irish domestic laws. The outcome of the case triggers for many tax directors a need to make their tax department and tax structure more future proof.
Where to find the right framework to set up your sustainable tax policy
A sustainable tax policy is necessary as an essential component to comply with the new Environmental, Social, and Governance obligations in the current society. The European Union has taken an innovative position in enhancing corporate ESG reporting standards by introducing the Corporate Sustainability Reporting Directive (CSRD). Multinational corporations are expected to demonstrate transparency and responsibility in their tax practices, as these factors are now seen as essential to their corporate reputation. RSM has published thought leadership that provides more insight into how to put your tax position in the right context within the CSRD. Read more here.
To develop a strong sustainable tax policy, we would recommend using the framework of the Global Reporting Initiative (GRI). The GRI 207 Tax standard was introduced to meet stakeholder demands for greater transparency around tax. It represents an example of the wider integration of tax with broader ESG topics. A key area of focus within the standard is the public country-by-country reporting requirement which has similar data points to the OECD BEPS template.
The standard contains three management approach disclosures and one topic-specific disclosure as seen in 207‒4:
- Disclosure 207–1: Approach to Tax
- Disclosure 207–2: Tax governance, control and risk management
- Disclosure 207–3: Stakeholder engagement and management concerns related to tax
- Disclosure 207–4: Country-by-country reporting tax data
With stakeholders increasingly looking for high-quality, transparent and comparable corporate reporting the GRI is one of the recommended frameworks for a new global baseline for ESG reporting. If no relevant European Sustainability Reporting Standards (ESRS) exists, the ESRS framework allows organizations to use Global Reporting Initiative standards to report on material topics not specifically covered by ESRS, such as tax:
“ESRS 1 – General Requirements
114.When the undertaking includes in its sustainability statement additional disclosures stemming from (i) other legislation which requires the undertaking to disclose sustainability information or (ii) generally accepted sustainability reporting standards and frameworks, including non-mandatory guidance and sector-specific guidance, published by other standard-setting bodies (such as technical material issued by the International Sustainability Standards Board or the Global Reporting Initiative)”
This means that the GRI tax reporting standard can provide transparent and comprehensive tax reporting. This internationally recognized standard ensures that the information is understandable, trustworthy, and comparable for stakeholders. These standards encourage companies to report tax payments country by country, aligning with broader societal expectations of fair tax contributions.
More specific disclosure 207-1 Approach to tax recommends taking into account how the approach to tax is linked to the business and sustainable development strategies of the organization:
“Guidance for Disclosure 207-1-a-iv
When describing how its approach to tax is linked to its business strategy, the organization can explain how its tax planning is aligned with its commercial activities. The description can include any relevant statements from its tax strategy or equivalent documents.
When describing how its approach to tax is linked to its sustainable development strategy, the organization can explain the following:
- Whether it considered the economic and social impacts of its approach to tax when developing its tax strategy.
- Any organizational commitments to sustainable development in the jurisdictions in which it operates and whether its approach to tax is aligned with these commitments.”
Taxes are essential elements to finance public goods such as education, social housing, and affordable healthcare. Using tax preferential structures such as the double Irish results, which result in a tax advantage of 13 billion, could provide an impression that public money is not spent on sustainable development goals. This could not be seen well by regulators, investors, and the public, and requires more ethical tax conduct from corporate taxpayers. Therefore, special consideration needs to be taken to include ESG aspects in your tax policy.
Forward thinking in adapting Tax Governance
The Apple State Aid case is a great example that shows compliance with national tax laws is insufficient in today’s European and international tax standards. Following this win in the Apple case, the Commission may be emboldened to open further cases. As, there is also a second pending appeal before the CJEU in the Belgian excess profit ruling scheme case, following the General Court’s judgments of 20 September 2023.
The current EU ruling in the Apple State Aid case highlights the necessity for multinational corporations to rethink their tax policies and set up their structure as much as possible more in line with the actual business. Considering the financial and reputational risks that a potential tax dispute can have it is recommended to align tax policies more in line with sustainable tax governance strategies that reduce the risk of conflict with EU Commissions and any national tax authorities as much as possible.
Going forward it would be recommended for companies to bring their tax strategy more in line with sustainability standards such as GRI 207: Tax 2019 to ensure transparency, accountability, and compliance with the spirit of the tax laws and minimize the risk of running into a tax dispute with the EU commission or national tax authority for having a too aggressive tax structure. RSM has published thought leadership that provides more insight into how to set up proper global tax governance in your company. Read more here.
RSM is a thought leader in the field of International Tax and Global Tax Governance. We offer frequent insights through training and sharing of thought leadership that is based on a detailed knowledge of EU Tax Directives, OECD Transfer Pricing Guidelines, OECD Guidance on BEPS initiatives (such as Pillar I and II), and practical applications in working with our customers. If you want to know more, please contact one of our consultants.