Case C‑465/20 P

European Commission

v

Ireland
and
Apple Sales International Ltd
and
Apple Operations International Ltd

Judgment of the Court (Grand Chamber) of 10 September 2024

(Appeal – State aid – Article 107(1) TFEU – Tax rulings issued by a Member State – Selective tax advantages – Allocation of profits generated by intellectual property licences to branches of non-resident companies – Arm’s length principle)

1. Aid granted by a Member State – Concept – Selective nature of the measure – Measure conferring a tax advantage – Tax rulings relating to the determination of the taxable profit of non-resident companies – Reference framework for determining whether there is a selective advantage – Identifying the ordinary or normal tax regime – Account taken only of national law in the matter of direct taxation – Scope

   (Art. 107(1) TFEU)

   (see paragraphs 74-85, 120, 297, 298)

2. Appeal – Grounds – Incorrect assessment of the facts and evidence – Inadmissibility – Review by the Court of the assessment of the facts and evidence – Possible only where the facts or evidence have been distorted – Commission’s examination of the existence of State aid in tax matters – Definition of the reference framework under national law and interpretation of its constituent provisions – Question of law amenable to judicial review on appeal

   (Arts 107(1) and 256(1), second subpara., TFEU; Statute of the Court of Justice, Art. 58, first para.)

   (see paragraphs 110-112, 170, 173-178)

3. Appeal – Grounds – Ground of appeal ineffective – Concept – Plea against a ground of the judgment not necessary to support the operative part – Plea against a finding that was based on a number of grounds – Effectiveness subject to complaints being raised in relation to each of the grounds accepted by the General Court

   (Art. 256(1), second subpara., TFEU; Statute of the Court of Justice, Art. 58, first para.)

   (see paragraphs 113-116)

4. Appeal – Subject matter – Setting aside of a judgment of the General Court by which a Commission decision finding aid to be incompatible with the internal market and ordering its recovery is held to be unlawful – Findings in the judgment under appeal not challenged in a cross-appeal – Res judicata – Further examination precluded

   (Arts 107(1) and 256(1), second subpara., TFEU; Statute of the Court of Justice, Art. 58, first para.)

   (see paragraph 124)

5. Appeal – Grounds – Error of law – Classification of a measure as State aid – Examination of the profit allocation method approved by tax rulings – Identifying the existence of an advantage – Plea alleging misinterpretation of the reasoning set out in the Commission decision at issue – Included

   (Arts 107(1) and 256(1), second subpara., TFEU; Statute of the Court of Justice, Art. 58, first para.)

   (see paragraphs 128-131)

6. Appeal – Grounds – Incorrect assessment of the facts and evidence – Inadmissibility – Review by the Court of the assessment of the facts and evidence – Possible only where the facts or evidence have been distorted – Examination of compliance with the rules relating to the burden of proof and taking of evidence – Admissibility

   (Art. 256(1) TFEU; Statute of the Court of Justice, Art. 58, first para.)

   (see paragraphs 168, 169, 243-245)

7. Aid granted by a Member State – Commission decision – Judicial review – Limits – Assessment of the legality by reference to the information available at the time of adoption of the decision – Taking into account of matters of fact or of law not put forward during the administrative procedure – Precluded

   (Arts 107(1), 108(3), 256(1), second subpara., and 263 TFEU; Statute of the Court of Justice, Art. 58, first para.)

   (see paragraphs 183-193)

8. Aid granted by a Member State – Concept – Selective advantage – Tax rulings – Allocation of profits to the branch of a non-resident company – Examination of the approved profit allocation method in the light of the arm’s length principle – Allocation of profits generated by the exploitation of intellectual property rights – Relevant criteria

   (Art. 107(1) TFEU)

   (see paragraphs 203, 206-215, 217-222)

9. Appeal – Appeal upheld – Final judgment on the substance by the Court – Scope – Prior rejection of a plea for annulment in a judgment annulling a measure – Failure to challenge the grounds for that rejection by way of cross-appeal – Consequence – Further examination precluded

   (Rules of Procedure of the Court of Justice, Arts 169(1) and 178(1))

   (see paragraphs 274, 275, 277, 279, 290, 304)

10. Aid granted by a Member State – Concept – Tax measures – Joint examination of the conditions of selectivity and economic advantage – Whether permissible

    (Art. 107(1) TFEU)

    (see paragraphs 296, 299-302)

11. Aid granted by a Member State – Concept – Selective advantage – Tax rulings – Examination of the approved profit allocation method in the light of the arm’s length principle – Derogation from the normal tax system applicable – Justification derived from the nature and general scheme of the system – Burden of proof

    (Art. 107(1) TFEU)

    (see paragraphs 305-311)

12. Aid granted by a Member State – Concept – Grant attributable to the State of an advantage through State resources – Adoption of a tax ruling – Decision having the effect of mitigating the tax burdens of an undertaking – Included

    (Art. 107(1) TFEU)

    (see paragraphs 315-322)

13. Aid granted by a Member State – Examination by the Commission – Administrative procedure – Decision initiating the formal investigation procedure laid down in Article 108(2) TFEU – Analysis of the existence of a selective advantage – Evolution of the Commission’s position at the conclusion of the procedure – Obligation of the Commission to give notice to the parties concerned to submit their comments – Scope – Change affecting the nature of the measures concerned or their legal classification

    (Art. 108(2) TFEU; Council Regulation 2015/1589, Arts 4(4), 6(1) and 9)

    (see paragraphs 331-339)

14. Aid granted by a Member State – Recovery of unlawful aid – Observance of the principles of legal certainty and protection of legitimate expectations – Conditions and limits

    (Arts 107 and 108(2) TFEU; Council Regulation 2015/1589, Art. 16(1))

    (see paragraphs 352-363)

15. Aid granted by a Member State – Concept – State intervention in areas which have not been harmonised in the European Union – Direct taxation – Included – Designation of the tax base and allocation of the tax burden – Competences of the Member States – Limits

    (Art. 107(1) TFEU)

    (see paragraphs 371-378)

Résumé

In setting aside the judgment of the General Court in Ireland and Others v Commission ( 1 ) by which the General Court annulled the decision of the European Commission on State aid implemented by Ireland to Apple, ( 2 ) and then itself giving final judgment on the remaining elements of the dispute, the Grand Chamber of the Court of Justice rules, in the light of the analysis set out in the decision at issue and of the findings of the General Court that remained unchallenged, that the Commission correctly established the selective nature of the advantage conferred on two Apple Group companies, incorporated in Ireland, by two tax rulings issued by the Irish tax authorities in relation to the determination of the tax base of the Irish branches of the companies concerned. In that regard, the Court of Justice places its analysis within the framework set out by the recently consolidated principles of case-law ( 3 ) concerning the definition and analysis of the reference framework in the light of which the selectivity of tax measures must be assessed for the purposes of Article 107(1) TFEU. It notes in that regard that the appropriate definition of the relevant reference framework, and, by extension, the correct interpretation of the constituent provisions of national law, is a question of law that falls within the scope of the review to be carried out by the Court of Justice on appeal, within the limits of the subject matter of that appeal.

Within the Apple Group, Apple Inc., established in Cupertino (United States), controls various companies incorporated in Ireland through its wholly owned subsidiary, Apple Operations International. The latter fully owns the subsidiary Apple Operations Europe (AOE), which in turn fully owns the subsidiary Apple Sales International (ASI). ASI and AOE are both companies incorporated in Ireland, but are not tax resident in Ireland. They each have a branch in Ireland, which does not have a separate legal personality. ( 4 )

ASI and AOE were bound to Apple Inc. by a cost-sharing agreement under which they were in particular granted royalty-free licences enabling them to use the Apple Group’s intellectual property rights. That use consisted, inter alia, in the manufacture and sale of the products concerned in all territories apart from North and South America.

Under the provisions of Irish law governing taxation of companies in force during the period under consideration (‘the reference provisions’), non-resident companies were liable to tax in respect of trading income arising directly or indirectly through an active branch in Ireland. In the present case, in 1990, the Irish tax authorities received requests from the predecessors of ASI and AOE for determination of their chargeable profits to be clarified. It is against that background that the Irish tax authorities issued a first tax ruling in 1991, subsequently revised at the request of ASI and AOE, and a second ruling in 2007 (together, ‘the contested tax rulings’).

At the end of a formal investigation procedure initiated in 2014, the Commission adopted the decision at issue concerning the contested tax rulings. In that decision, the Commission found, in particular, that, in so far as the contested tax rulings had led to a reduction in ASI’s and AOE’s tax base, for the purpose of establishing corporation tax in Ireland, they had conferred an advantage on those two companies. In order to prove the existence of a selective advantage in the present case, the Commission examined whether there was a selective advantage arising from a derogation from the reference framework. On the basis of primary, subsidiary and alternative lines of reasoning, the Commission considered, in essence, that the contested tax rulings had enabled ASI and AOE to reduce the amount of tax for which they were liable in Ireland during the period when those rulings were in force, namely from 1991 to 2014, and that that reduction in the amount of tax represented an advantage as compared to other companies in a comparable situation. More specifically, primarily, the Commission contended that the fact that the Irish tax authorities had accepted, in the contested tax rulings, the premiss that the Apple Group’s intellectual property (‘IP’) licences held by ASI and AOE had to be allocated outside Ireland had led to ASI’s and AOE’s annual chargeable profits in Ireland departing from a reliable approximation of a market-based outcome in line with the arm’s length principle.

Ruling on the actions brought by Ireland and by ASI and AOE, respectively, for annulment of the decision at issue, the General Court found that the Commission had not succeeded in showing to the requisite legal standard that there was an advantage for the purposes of Article 107(1) TFEU and annulled the decision at issue in its entirety.

In its judgment, the General Court recalled as a preliminary point that, in the context of State aid control, in order to assess whether the contested tax rulings constituted such aid, the Commission was required to demonstrate in particular that those tax rulings had conferred a selective advantage.

In that regard, the General Court rejected the Commission’s primary line of reasoning in relation to the existence of an advantage on two grounds, relating, first, to the Commission’s assessments of normal taxation under the Irish tax law applicable in the present case, and, secondly, to the Commission’s assessments of the activities within the Apple Group.

Having also rejected the subsidiary and alternative lines of reasoning in that respect, the General Court annulled the decision at issue in its entirety without examining the other pleas in law and complaints raised by Ireland and by ASI and AOE.

The Commission relies, in support of its appeal, on two grounds of appeal, relating, respectively, to the grounds of the judgment under appeal concerning the assessment of the primary line of reasoning and those concerning the assessment of the subsidiary line of reasoning.

Findings of the Court

As a preliminary point, the Court of Justice recalls that, in order to classify a national tax measure as ‘selective’ for the purposes of Article 107(1) TFEU, the Commission must begin by identifying the reference system, that is, the ‘normal’ tax system applicable in the Member State concerned, and demonstrate, as a second step, that the tax measure at issue is a derogation from that reference system, in so far as it differentiates between operators who, in the light of the objective pursued by that system, are in a comparable factual and legal situation.

The Court states that the determination of the reference framework is of particular importance in the case of tax measures, since the existence of an economic advantage for the purposes of Article 107(1) TFEU may be established only when compared with ‘normal’ taxation.

On that point, the Court also observes that, outside the spheres in which EU tax law has been harmonised, it is the Member State concerned which determines, by exercising its own competence in the matter of direct taxation, the characteristics constituting the tax, which define, in principle, the reference system or the ‘normal’ tax regime. This includes, in particular, the determination of the basis of assessment, the taxable event and any exemptions to which the tax is subject. It follows that only the national law applicable in the Member State concerned must be taken into account in order to identify that reference system. That conclusion is, however, without prejudice to the possibility of finding that the reference framework itself, as it results from national law, is incompatible with EU law on State aid, since the tax system at issue has been configured according to manifestly discriminatory parameters intended to circumvent that law.

The Court examined the appeal in the light of those principles.

In that regard, the Court states at the outset that the Commission’s primary line of reasoning is based on the premiss that, in order to allocate the profits correctly in accordance with the separate entity approach and the arm’s length principle laid down by the applicable provisions of national law, ( 5 ) the competent Irish authorities were required to verify whether the profits derived from the use of the Apple Group’s IP licences held by ASI and AOE did not, wholly or in part, have to be attributed to their Irish branches. The failure to verify as required by those provisions resulted, according to the Commission, in a lowering of the tax burden for those companies, conferring a selective advantage on them.

Having made that point, the Court of Justice rules that the Commission is permitted to challenge the General Court’s findings in respect of the reference framework derived from Irish law. The question whether the General Court adequately defined the reference system under Irish law and, by extension, correctly interpreted the national provisions which that system comprises is a question of law which can be reviewed by the Court of Justice on appeal. Thus, the Commission’s arguments aimed at calling into question the choice of reference framework or its meaning in the first step of the analysis of the existence of a selective advantage are admissible, since that analysis derives from a legal classification of national law on the basis of a provision of EU law. In the present case, the same applies both to the complaint that the General Court misinterpreted the decision by finding that the Commission had confined itself to an ‘exclusion’ approach in its primary line of reasoning, and to the complaint by which the Commission argues that the General Court relied on the functions performed by Apple Inc.

The Court of Justice thus examines, in the first place, the complaint alleging that the decision at issue was misinterpreted, in so far as the General Court found that the Commission’s primary line of reasoning relied solely on the lack of employees and physical presence in the head offices of ASI and AOE and, accordingly, on an ‘exclusion’ approach.

In that regard, the Court of Justice finds, first of all, that the Commission’s reasoning is based on the premiss that the application of the reference provisions required the prior determination of a profit allocation method, which is not defined in those provisions, and, moreover, that that method had to lead to an outcome consistent with the arm’s length principle. As it is, that premiss was not called into question by the General Court, which added that ‘normal’ taxation is to be determined according to the national tax rules and that those rules must be used as a reference point when establishing the very existence of an advantage, but nevertheless went on to make clear that if those national rules provide that the branches of non-resident companies, as concerns the profits derived from those branches’ trading activity in Ireland, and resident companies are subject to the same conditions of taxation, Article 107(1) TFEU gives the Commission the right to check whether the level of profit allocated to such branches, which has been accepted by the national authorities for the purpose of determining the chargeable profits of those non-resident companies, corresponds to the level of profit that would have been obtained if that activity had been carried on under market conditions.

According to the Court of Justice, it may be inferred from this that the application of the arm’s length principle in the present case is based on Irish tax rules on the taxation of companies and, accordingly, on the reference system identified by the Commission and confirmed by the General Court. In the present case, the General Court explicitly acknowledged that, contrary to Ireland’s contention, the application of the reference provisions, as described by Ireland, corresponded in essence to the functional and factual analysis conducted as part of the first step of the approach authorised by the Organisation for Economic Co-operation and Development (OECD) for profit allocation to a permanent establishment. Those findings of the General Court caused it in particular to rule that the Commission had not erred when it relied on the arm’s length principle in order to check whether, in the application of the reference provisions by the Irish tax authorities, the level of profit allocated to the branches of ASI and AOE for their trading activity in Ireland, as accepted in the contested tax rulings, corresponded to the level of profit that would have been obtained by carrying on that trading activity under market conditions, and when it relied, in essence, on the Authorised OECD Approach for the purposes of applying those provisions, while taking into account the allocation of assets, functions and risks between those branches and the other parts of those companies. Those findings must be taken as read, in so far as they have not been validly called into question by the other parties in the context of the present appeal.

It follows from the steps in the reasoning set out in the decision at issue that the Commission first of all found that, in order to determine, in accordance with the relevant provisions of national law, ASI’s and AOE’s taxable profit in Ireland under the arm’s length principle, it was appropriate to compare the functions performed, respectively, by the head offices and by the Irish branches of those companies in relation to the IP licences. Next, in applying that test, it carried out a separate examination of the role assumed by each of those head offices and each of those branches in relation to those licences. Following that examination, it found, on the one hand, an absence of functions in relation to the IP licences in the case of the head offices and, on the other, an active role by the Irish branches resulting from the assumption of a series of functions and risks associated with the management and use of those licences. Furthermore, the finding of the absence of ‘active or critical’ functions performed by the head offices is based on the lack of evidence to the contrary from Apple, in conjunction with the finding that those head offices lacked the actual capacity to perform those functions. Thus, the Commission’s primary line of reasoning is based not only on the lack of functions performed by the head offices in relation to the IP licences, but also on the analysis of functions actually performed by the branches in relation to those licences.

Therefore, it was not the finding that the head offices had neither employees nor physical presence outside the Irish branches that led the Commission to conclude that the IP licences and related profits had to be allocated to those branches. The Commission drew that conclusion after linking two separate findings, that is to say, first, the absence of active or critical functions performed and risks assumed by the head offices and, secondly, the multiplicity and centrality of the functions performed and risks assumed by those branches, applying the legal test set out in the decision at issue.

In those circumstances, the Court of Justice holds that the General Court erred in law when it found that the Commission had confined itself to an ‘exclusion’ approach in its primary line of reasoning, which was a misinterpretation of the decision at issue.

In the second place, as regards the grounds covered by the appeal on which the General Court relied when it found that ASI’s and AOE’s branches in Ireland did not control the Apple Group’s IP licences and did not generate the profits which the Commission claimed they achieved, the Court of Justice holds, first of all, that the Commission is justified in arguing that the General Court committed a breach of procedure by taking into account, for the purposes of its analysis, evidence which had not been produced during the administrative procedure and which, therefore, had to be considered inadmissible. Furthermore, as regards the method for allocating chargeable profits required under Irish law, the Court of Justice observes that the test for determining the profits of a non-resident company held by the General Court to be applicable under section 25 of the TCA 97 requires the allocation of assets, functions and risks between the Irish branches and the other parts of the companies concerned, excluding any role played by separate entities, such as, in this instance, Apple Inc. In that regard, the Court of Justice finds that, in the grounds that are being challenged, the General Court relied explicitly or implicitly on the functions performed by Apple Inc. in relation to the Apple Group’s IP to support its finding of an error vitiating the analysis set out by the Commission. Consequently, the Court of Justice rules that the Commission is justified in arguing that, in order to rule that the evidence to support the allocation of profits from the exploitation of the IP licences to the branches of ASI and AOE was insufficient, the General Court wrongly compared the functions performed by those branches in relation to those licences to the functions performed by Apple Inc. in relation to the Apple Group’s IP, rather than to those actually performed by the head offices in connection with those licences.

In the third place, the Court of Justice examines the finding that the agreements and activities of ASI and AOE outside Ireland show that those companies were in a position to develop and manage the Apple Group’s IP and to generate profits outside Ireland and that those profits were, consequently, not subject to tax in Ireland. It considers in that regard that, while the assessment of the probative value of a document in the file is in principle for the General Court alone to make, it is nevertheless incumbent on the Court of Justice to examine a complaint that the burden of proof has been determined incorrectly. In the present case, by finding that the Commission was required to demonstrate the existence of important business decisions not mentioned in the board minutes of the companies concerned, the General Court imposed an excessive burden of proof on the Commission.

In the light of the foregoing considerations, the Court of Justice sets aside the judgment under appeal in so far as the complaints against the primary line of reasoning relating to the existence of a selective advantage are upheld and, in consequence, the decision at issue is annulled.

Next, the Court of Justice considers the state of the proceedings to be such that it may give final judgment and examines the actions for annulment of the decision at issue brought by Ireland and by ASI and AOE.

On that basis, the Court rules, first of all, that all of the pleas directed against the Commission’s findings that relate to its primary line of reasoning and deal, on the one hand, with the identification of the reference framework and, on the other, with normal taxation under the Irish law applicable in the present case must be rejected, in so far as the General Court rejected the complaints raised in that respect on grounds that remained unchallenged at the appeal stage. In the absence of a cross-appeal, such grounds have the force of res judicata.

The Court of Justice goes on to find that, contrary to what was held by the General Court, the Commission succeeded in showing that, in the light of the activities and functions actually performed by the Irish branches of ASI and AOE and, moreover, of the absence of consistent evidence establishing that strategic decisions were taken and implemented by the head offices of those companies outside Ireland, the profits generated by the exploitation of the Apple Group’s IP licences should have been allocated to those Irish branches when determining the annual chargeable profits of ASI and AOE in Ireland. The Commission also demonstrated to the requisite standard that the contested tax rulings have the effect that ASI and AOE enjoy favourable tax treatment as compared to resident companies taxed in Ireland which are not capable of benefiting from such advance rulings by the tax administration, that is, in particular, non-integrated standalone companies, integrated group companies that carry out transactions with third parties or integrated group companies that carry out transactions with group companies with which they are linked by fixing the price of those transactions at arm’s length, even though those companies are in a comparable factual and legal situation as regards the objective of that reference system, which is to tax profits generated in Ireland. Lastly, the Commission was right to find, in the decision at issue, that the different tax treatment of ASI’s and AOE’s profits as a result of the contested tax rulings was not justified by the nature or by the general scheme of the Irish tax system. In those circumstances, the complaints put forward by the applicants in respect of the examination of the selectivity of those tax rulings in the decision at issue must be rejected.

Furthermore, the Commission did not err when it found that Ireland had renounced tax revenue from ASI and AOE since the contested tax rulings endorse methods for allocating profits which produce an outcome that separate and standalone undertakings operating under normal market conditions would not have accepted. Those tax rulings reduce the chargeable profits of ASI and AOE for the purposes of applying the reference provisions and, therefore, the amount of corporation tax which they are required to pay in Ireland, as compared to other companies taxed in Ireland whose chargeable profits reflect prices determined on the market in line with the arm’s length principle. Such measures therefore mitigate the charges which are generally included in the budget of an undertaking, and thus do involve an advantage granted ‘through State resources’.

Lastly, the Court of Justice rejects as unfounded the pleas in law alleging, in particular, infringement of the right to be heard in the context of the procedure leading to the adoption of the decision at issue, breach of the principles of legal certainty and the protection of legitimate expectations, and that the Commission exceeded its competences and encroached on the competences of the Member States in breach of the principle of their fiscal autonomy.

In the light of the foregoing, the Court of Justice dismisses in their entirety the actions for annulment brought before the General Court.

( 1 ) Judgment of 15 July 2020, Ireland and Others v Commission (T‑778/16 and T‑892/16, EU:T:2020:338).

( 2 ) Commission Decision (EU) 2017/1283 of 30 August 2016 on State aid SA.38373 (2014/C) (ex 2014/NN) (ex 2014/CP) implemented by Ireland to Apple (OJ 2017 L 187, p. 1; ‘the decision at issue’).

( 3 ) See, in particular, judgment of 5 December 2023, Luxembourg and Others v Commission (C‑451/21 P and C‑454/21 P, EU:C:2023:948).

( 4 ) ASI’s Irish branch is, inter alia, 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, Africa and the Asia-Pacific. AOE’s Irish branch is responsible for the manufacture and assembly of a specialised range of computer products in Ireland, such as iMac desktops, MacBook laptops and other computer accessories, which it supplies to related parties for Europe, the Middle East, India and Africa.

( 5 ) That is, in particular, those to which section 25 of the Taxes Consolidation Act 1997 (‘TCA 97’) relates.