Apple company logos are reflected on the glass window outside an Apple store in Shanghai, China. Picture: REUTERS/ALY SONG
Apple company logos are reflected on the glass window outside an Apple store in Shanghai, China. Picture: REUTERS/ALY SONG

Luxembourg/Brussels — Apple is fighting the world’s biggest tax case in a quiet courtroom this week, trying to rein in the EU's powerful antitrust chief ahead of a potential new crackdown on internet giants.

The iPhone maker can tell the EU General Court in Luxembourg that it is the world’s biggest taxpayer. But that’s not enough for EU competition commissioner Margrethe Vestager, who said in a 2016 ruling that Apple’s tax deals with Ireland allowed the company to pay far less than other businesses. The court must now weigh up whether regulators were right to levy a record €13bn tax bill.

Apple’s haggling over tax comes after its market valuation hit $1.02-trillion last week after a new, aggressive pricing strategy that may stoke demand for some smartphones and watches. The company’s huge revenue — and that of other technology firms — has attracted close scrutiny in Europe, focusing on complicated company structures for transferring profits generated from intellectual property.

A court ruling, likely to take months, could empower or halt Vestager’s tax probes, which are now centering on fiscal deals done by Amazon.com and Alphabet. She has also been tasked with coming up with a “fair European tax” by the end of 2020 if global efforts to reform digital taxation don’t make progress.

“Politically, this will have very big consequences,” said Sven Giegold, a Green member of the European Parliament. “If Apple wins this case, the calls for tax harmonization in Europe will take on a different dynamic, you can count on that.”

Vestager showed her determination to fight the tax cases to the end by opening new probes into 39 companies’ tax deals with Belgium on Monday. The move addresses criticism by the same court handling the Apple challenge. A February judgment threw out her 2016 order for them to pay back about 800 million euros.

Apple’s fury at the EU’s 2016 order saw Chief Executive Officer Tim Cook blasting the EU move as “total political crap.” The company’s legal challenge claims the EU wrongly targeted profits that should be taxed in the US and “retroactively changed the rules” on how global authorities calculate what’s owed to them.

The US treasury weighed in too, saying the EU was making itself a “supra-national tax authority” that could threaten global tax reform efforts. President Donald Trump hasn’t been silent either, saying Vestager “hates the US” because “she’s suing all our companies”.

“There is a lot at stake given the high-profile nature of the case, as well as the concerns that have been raised from the US Treasury that the investigations risk undermining the international tax system,” Oxera partner Nicole Robins said.

Apple declined to comment ahead of the hearing, referring to previous statements. The European Commission also declined to comment. Ireland said it “profoundly” disagreed with the EU’s findings.

Richard Murphy, a professor at London’s City University, said the EU’s case “is about making clear that no company should be beyond the geographic limits of tax law”.

“Selective attempts to get round the law — which is what tax avoidance is — are unacceptable when companies seek the protection and support of that same law” in the rest of their business,” Murphy said.

Vestager has also fined Google some $9bn. She’s ordered Amazon to pay back taxes — a mere €250m — and is probing Nike’s tax affairs and looking into Google’s taxation in Ireland.

The first hints of how the Apple case may turn out will come from a pair of rulings scheduled for September 24.

The general court will rule on whether the EU was right to demand unpaid taxes from Starbucks and a Fiat Chrysler Automobiles unit. Those judgments could set an important precedent on how far the EU can question tax decisions national governments make on how companies should be treated.

“It’s very clear that the largest companies in the world — the frightful five I call them — are hardly paying taxes,” said Paul Tang, a socialist lawmaker at the European Parliament. “Cases like these, Amazon in Luxembourg or Apple in Ireland, started to build public and political pressure” for tax reform in Europe.

The legal battles may go on for a few years more. The General Court rulings can be appealed once more to the EU’s highest tribunal, the EU Court of Justice. Meanwhile, Apple’s back taxes — €14.3bn including interest — sit in an escrow account and can’t be paid to Ireland until the final legal challenges are exhausted.

For Alex Cobham, CEO of the Tax Justice Network campaign group, the issue is already in the past and “it’s not even the biggest tax scandal that Apple has” after reports on other structures it may use. Tax reforms under discussion “will ensure much closer alignment of taxable profits and the real economic activity” generated by them.

Bloomberg