Apple v. European Commission: Losing the War on Corporate International Transfer Pricing

Apple v. European Commission: Losing the War on Corporate International Transfer Pricing

* Prof. Beckett Cantley (University of California, Berkeley, B.A. 1989; Southwestern University School of Law, J.D. cum laude 1995; and University of Florida, College of Law, LL.M. in Taxation, 1997), teaches International Taxation at Northeastern University and is a shareholder in Cantley Dietrich, P.C. Prof. Cantley would like to thank Melissa Cantley and his law clerk, Austin Schley, for their contributions to this article.

** Geoffrey Dietrich, Esq. (United States Military Academy at West Point, B.S. 2000; Brigham Young University Law School, J.D. 2008) is a shareholder in Cantley Dietrich, P.C.

[1] . Joined Cases T-778/16 & T-892/16, Apple Sales Int’l v. Eur. Comm’n, ECLI:EU:T:2020:338 ¶¶ 2, 23 (July 15, 2020).

[2] . Id. ¶¶ 247, 249, 295, 309, 351, 373.

[3] . Stefano Micossi & Paola Parascandolo, The Taxation of Multinational Enterprises in the European Union, Ctr. for Eur. Pol’y Stud. Pol’y Brief, 1, No. 203 (Feb. 4, 2010).

[4] . Id. at 1, 3.

[5] . Sijbren Cnossen, Corporation Taxes in the European Union: Slowly Moving Toward Comprehensive Business Income Taxation?, 25 Int’l Tax & Pub. Fin. 808, 810 (2017).

[6] . Id. at 816.

[7] . Id. at 815.

[8] . Dirk Verbeken, Fact Sheets on the European Union: General Tax Policy, Eur. Parl. 1-2 (last updated May 2021).

[9] . Id.

[10] . Id.

[11] . Id.

[12] . David G. Chamberlain, Apple, State Aid, and Arm’s Length: EU General Court’s Failure of Imagination, Tax Notes Today Fed., 1179, 1180 (Sept. 16, 2020), https://www.taxnotes.com/tax-notes-todayfederal/competition-and-state-aid/apple-state-aid-and-arms-length-eu-general-courts-failureimagination/2020/09/16/2cwm8. The European Commission is the executive wing of the European Union, and, among other things, is in charge of enforcing the European Union’s laws. European Commission, Eur. Union , https://www.europa.eu/european-union/about-eu/institutions-bodies/european-commission_en (last updated July 5, 2020).

[13] . Consolidated Version of the Treaty on the Functioning of the European Union art. 107, May 9, 2008, 2008 O.J. (C 115) 47, 91 [hereinafter TFEU].

[14] . Chamberlain, supra note 12, at 1184.

[15] . Id.

[16] . Id.

[17] . Joined Cases T-778/16 & T-892/16, Apple Sales Int’l v. Eur. Comm’n, ECLI:EU:T:2020:338, ¶¶ 1–3 (July 15, 2020).

[18] Id.

[19] . Id. ASI is responsible for “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).” Id. ¶ 9. AOE “is responsible for the manufacture and assembly of a specialized range of computer products in Ireland . . .which it supplies to related parties for the EMEIA region.” Id. ¶ 10.

[20] . Joined Cases T-778/16 & T-892/16, Apple Sales Int’l v. Eur. Comm’n, ECLI:EU:T:2020:338, ¶ 11 (July 15, 2020).

[21] . Id.

[22] Id. ¶ 18.

[23] . Id. ¶ 19.

[24] . Id. ¶ 27.

[25] . Id. ¶ 88.

[26] . Joined Cases T-778/16 & T-892/16, Apple Sales Int’l v. Eur. Comm’n, ECLI:EU:T:2020:338, ¶ 91 (July 15, 2020).

[27] . Id.

[28] . Id. ¶ 103.

[29] . Id.

[30] . Id.

[31] . Id. ¶ 129.

[32] . Joined Cases T-778/16 & T-892/16, Apple Sales Int’l v. Eur. Comm’n, ECLI:EU:T:2020:338, ¶ 143 (July 15, 2020).

[33] . Id. ¶¶ 169–71.

[34] . Id.

[35] . Id. ¶ 179.

[36] . Id.

[37] . Id. ¶ 189.

[38] . Joined Cases T-778/16 & T-892/16, Apple Sales Int’l v. Eur. Comm’n, ECLI:EU:T:2020:338, ¶ 231 (July 15, 2020).

[39] . Id. ¶ 26.

[40] . Id. ¶¶ 26–27.

[41] . Id. ¶¶ 32–47.

[42] Id. ¶ 32 (The reference system in State aid cases refers to “the baseline against which the illegal subsidy (or the ‘tax advantage’ in EU parlance) can be measured.); see also Stephen Daly & Ruth Mason, State Aid: The General Court Decision in Apple, 99 Tax Notes Int’l 1317 (2020), https://www.taxnotes.com/tax-notes-federal/corporate-taxation/state-aid-general-court-decision-apple/2020/09/07/2cw9y (explaining that the reference system in state aid cases refers to “the baseline against which the illegal subsidy (or the ‘tax advantage’ in EU parlance) can be measured”).

[43] . Joined Cases T-778/16 & T-892/16, Apple Sales Int’l v. Eur. Comm’n, ECLI:EU:T:2020:338, ¶ 33 (July 15, 2020).

[44] . Id. ¶ 34 (According to the Commission, the reasoning behind the arm’s length principle is described as, “principle was intended to ensure that intra-group transactions be treated, for tax purposes, in the same way as those carried out between non-integrated stand-alone companies, so as to avoid unequal treatment of companies in a similar factual and legal situation, having regard to the objective of such a system, which was to tax the profits of all companies falling within its fiscal jurisdiction.”).

[45] . Id. ¶ 37.

[46] . Id. ¶ 39.

[47] . Id.

[48] . Id. ¶ 41.

[49] . Joined Cases T-778/16 & T-892/16, Apple Sales Int’l v. Eur. Comm’n, ECLI:EU:T:2020:338, ¶ 45 (July 15, 2020).

[50] . See generally id.

[51] . Id. ¶ 101.

[52] . Id. ¶ 105.

[53] . Id. ¶ 106.

[54] . Id. ¶ 108.

[55] . Joined Cases T-778/16 & T-892/16, Apple Sales Int’l v. Eur. Comm’n, ECLI:EU:T:2020:338, ¶ 108 (July 15, 2020).

[56] . Id. ¶ 110.

[57] . Id. ¶ 111.

[58] . Id. ¶ 122.

[59] . Id. ¶ 150.

[60] . Id. ¶¶ 152–63.

[61] . Joined Cases T-778/16 & T-892/16, Apple Sales Int’l v. Eur. Comm’n, ECLI:EU:T:2020:338, ¶ 175 (July 15, 2020).

[62] . Id.

[63] . Id. ¶ 180.

[64] . Id. ¶ 181.

[65] . Id. ¶ 182.

[66] . Id. ¶ 184.

[67] . Joined Cases T-778/16 & T-892/16, Apple Sales Int’l v. Eur. Comm’n, ECLI:EU:T:2020:338, ¶ 186 (July 15, 2020).

[68] . Id.

[69] . Id. ¶ 187.

[70] . Id. ¶ 196.

[71] . Id. ¶ 215.

[72] . Id. ¶ 225.

[73] . Joined Cases T-778/16 & T-892/16, Apple Sales Int’l v. Eur. Comm’n, ECLI:EU:T:2020:338, ¶ 229 (July 15, 2020).

[74] . Id. ¶ 240.

[75] . Id. ¶ 242.

[76] . Id.

[77] . Id. ¶ 245.

[78] . Id. ¶ 249.

[79] . Joined Cases T-778/16 & T-892/16, Apple Sales Int’l v. Eur. Comm’n, ECLI:EU:T:2020:338, ¶¶ 251–311 (July 15, 2020).

[80] . Id. ¶ 310.

[81] . Id.

[82] . Id. ¶ 333.

[83] . Id. ¶ 505.

[84] . Leonie Carter, Commission Lays Out Arguments in Appeal of Apple Tax Case, Politico (Feb. 1, 2021, 2:28 PM).

[85] . Id.

[86] . Id.

[87] See Robert Goulder, Why the European Commission Must Appeal the Apple Decision, 99 Tax Notes Int’l 973 (Aug. 17, 2020), https://www.taxnotes.com/featured-analysis/why-european-commission-must-appeal-apple-decision/2020/08/14/2ctv8; see also Chamberlain, supra note 12.

[88] . Goulder, supra note 87, at 973.

[89] . Id.

[90] . Id.

[91] . Id.

[92] . Id.

[93] . Robert Goulder, Why the European Commission Must Appeal the Apple Decision, 99 Tax Notes Int’l 973 (Aug. 17, 2020), https://www.taxnotes.com/featured-analysis/why-european-commission-must-appeal-apple-decision/2020/08/14/2ctv8.

[94] . Id.

[95] . Chamberlain, supra note 12, at 1180.

[96] . Id. at 1189.

[97] . Id. at 1180.

[98] . Mark Beasley et al., Make Tax Planning a Part of Your Company’s Risk Management Strategy, Harv. Bus. Rev . (Nov. 13, 2020), https://www.hbr.org/2020/11/make-tax-planning-a-part-of-your-companys-risk-management-strategy.

[99] . Chamberlain, supra note 12, at 1189.

[100] . Joined Cases T-755/15 & T-759/15, Grand Duchy of Luxembourg v. Comm’n, ECLI:EU:T:2019:670, ¶ 1 (Sept. 24, 2019).

[101] . Id.

[102] The Fiat & Starbucks State Aid Cases: The Arm’s Length Principle, a New Tool to Challenge (But Also Defend) Transfer Pricing Rulings in Illegal State Aid Investigations?, Eversheds Sutherland (Oct. 14, 2019), https://www.eversheds-sutherland.com/global/en/what/articles/index.page?ArticleID=en/State_aid/Fiat-Starbucks-general-court-judgements [hereinafter Fiat & Starbucks].

[103] . Id.

[104] . Sara White, Starbucks Wins €30m Case Over Disputed Tax Bill, Accountancy Daily (Sept. 24, 2019), https://www.accountancydaily.co/starbucks-wins-eu30m-case-over-disputed-dutch-tax-bill.

[105] . Fiat & Starbuckssupra note 102.

[106] . Id.

[107] . Id.

[108] . Frans Vanistendael, Apple: Why the EU Needs a Common Corporate Income Tax, 99 Tax Notes Int’l 451 (July 27, 2020), https://www.taxnotes.com/tax-notes-international/competition-and-state-aid/apple-why-eu-needs-common-corporate-income-tax/2020/07/27/2crc2.

[109] . See id.

[110] . Id.

[111] . See id.

[112] . Id.

[113] . Robert Goulder, Amazon and the State Aid Doctrine: Unchecked Mission Creep, 1 02 Tax Notes Int’l 1571 (June 14, 2021), https://www.taxnotes.com/tax-notes-international/litigation-and-appeals/amazon-and-state-aid-doctrine-unchecked-mission-creep/2021/06/14/76l71.

[114] . Id.

[115] . Ryan Finley & Kiarra M. Strocko, Amazon and Engie Cast Doubt On State Aid Enforcement Approach, 102 Tax Notes Int’l 874, 874 (May 17, 2021), https://www.taxnotes.com/tax-notes-international/competition-and-state-aid/amazon-and-engie-cast-doubt-state-aid-enforcement-approach/2021/05/17/5s7tb.

[116] . Id. at 875.

[117] . Id. at 875–76.

[118] . Goulder, supra note 113, at 1571.

[119] . Chamberlain, supra note 12, at 1179.

[120] . Id. at 1179–80.

[121] . Id at 1181.

[122] . Id. at 1182.

[123] . Id.

[124] . Id.

[125] See Stephanie Soong Johnston, Crunch Time: What the Apple Decision Means for Global Tax Reform, Tax Notes Today Int’l , 5 (July 28, 2020), https://www.taxnotes.com/tax-notes-today-international/digital-economy/crunch-time-what-apple-decision-means-global-tax-reform/2020/07/28/2crm9?highlight=state%20aid.

[126] . Id. at 1–2.

[127] . Id. at 5.

[128] . Id.

[129] . Id. at 6.

[130] . Id. at 1.