Apple Tax Fight Looks More Difficult After EU Court Ruling

Apple may face a tough battle in disputes over European Union demands for back taxes after the bloc’s top court partly backed regulators’ attempt to force Spanish firms to repay millions of euros in tax breaks, according to Bloomberg. In a ruling that could ultimately add impetus to the region’s clampdown on special tax treatment for selected companies, judges at the EU Court of Justice in Luxembourg said a lower tribunal should re-examine a Spanish system that gave tax breaks to companies for the acquisition of stakes in foreign firms. Those tax advantages must now be repaid, the EU said in a statement.

The EU General Court was wrong to rule that the European Commission failed to show that a group of companies was singled out by the program, which granted deductions for shareholdings in foreign firms, the top judges said. Regulators don’t always have to show that only certain companies benefit from the aid, the court said.

“This is a landmark decision because it clarifies the rules of the game,“ said Raymond H.C. Luja, a professor of comparative tax law at Maastricht University. “That will also have its effect on a number of ongoing cases.“ The ruling “reestablishes the comparability standards, meaning you have to look whether companies in the same legal and factual situation are treated differently, without proper justification,“ Luja said. “That’s the argument the commission is also using in many of the tax-ruling cases.“

The court confirmed the principle that companies that are comparable, being in the same factual and legal situation, should be treated the same. But the ruling leaves a key question in the tax probes unanswered, Luja said.“The question in the ongoing tax ruling cases is whether the commission’s assumption that a standalone company and a group company are comparable, is applicable, and there this decision tells us little.“

Spain must now demand the companies repay the tax advantages they received, the EU said. Regulators had agreed to avoid "actively" pursuing back-tax demands until the ruling was delivered. The European Commission told Spain in 2009 and 2011 to abolish the tax breaks and recoup tax advantages dating back to December 2007. But that order hit a road block two years ago when the EU General Court, the bloc’s second-highest tribunal, ruled that the Spanish regime at issue was not selective and doesn’t exclude any “company from taking advantage of it.“

Wednesday’s ruling says regulators "properly established the selectivity" of the tax program because it was restricted to certain companies, undermining one of the key planks of the Spanish firms’ arguments against the EU decision. While the case may take years to reach a conclusion, the judgment emboldens the EU in the midst of its war against tax subsidies.