How EU forced Ireland and Apple into a €13bn tax defeat

The fallout has reverberated throughout Europe, across the Atlantic and to the heart of Silicon Valley in California, but its opening scene could hardly have been less impressive. In a nondescript room in the European Commission’s competition offices in Brussels, Helena Malikova uncovered the scale of a multibillion-euro tax avoidance scheme involving the world’s richest company and one of the European Union’s smallest states.
Malikova, a European Commission official who had turned 30 in the summer of 2013, ploughed through arcane tax documents that revealed a bombshell financial secret. Apple, then the world’s biggest company by market capitalisation, was paying as little as 0.005 per cent tax on profits booked through two Irish subsidiaries as part of a “sweetheart” tax deal with the Irish government that dated back to 1991.
The Irish units, Apple Operations Europe and Apple Sales International, were used to book 90 per cent of the company’s non-US sales, but the negligible tax rate was far below the country’s headline corporation tax of 12.5 per cent.
“We never expected to find what we found,” Malikova told a conference in Helsinki last year. “There was nothing,” she said, referring to the absence of any employees or economic activity in the two units under investigation. “We didn’t think this was possible.”
• Apple loses landmark tax case with the EU
The investigation, carried out in secrecy by a handful of officials over three years, culminated in an order from Brussels demanding that Ireland claw back €13 billion in unpaid taxes from Apple. After eight years of appeals from the company and the Irish government, this week the European Union’s highest court ruled in favour of the European Commission’s judgment that the tax arrangement constituted illegal state aid.
The €13 billion, with added interest, is the largest state aid penalty ever dished out in the EU and represents the biggest tax assault against an American company made by a foreign regulator. Margrethe Vestager, the European competition commissioner, said that she had “cried” after hearing the result. “It’s very important to show European taxpayers that, once in a while, tax justice can be done.”
Apple said it had always paid “the taxes we owe wherever we operate and there has never been a special deal”.
At the start of the last decade, governments across Europe scrambled to repair their public finances after bailing out stricken banks and forcing punishing austerity on their taxpayers. Demands for social fairness honed in on complex corporate tax structures that allowed multinational companies to pay dwindling amounts of tax in leading economies.
Brussels turned to its powerful state aid rulebook to examine whether “comfort letters” from member states to corporations were legal. The most sensitive of all was Apple’s lucrative tax arrangements in Ireland. “It was the mother of all cases,” an official told The Times.
For decades, the EU’s competition arm has busied itself with policing mergers to ensure fair markets for consumers and has investigated government aid to companies, often in the form of direct subsidies. In the Apple investigation, which came after similar cases involving Starbucks and Fiat in the Netherlands and Luxembourg, Malikova argued that sweetheart tax deals were illegal subsidies that distorted the single market. The cases intruded on one of the most fiercely protected areas of national government policy: the ability to decide your own tax laws.
“After the Starbucks case, we couldn’t look away,” Malikova said last year. “Member states’ sovereignty was about their right not to know [what these companies were doing]. And [the commission] was not supposed to be asking questions.”
The investigation had explosive ramifications inside the EU’s machinery, dividing its member countries against the executive division and inflaming transatlantic tensions. Months after the Apple tax bill had been announced, a new administration took office in Washington under President Trump, who labelled Vestager “the tax lady”.
Although the Apple decision was due to be made public in the first half of 2016, it was delayed to avoid influencing the UK’s Brexit referendum on June 23. Nervy officials also held discussions about lowering the €13 billion back taxes bill, which was worth 4.5 per cent of Ireland’s gross national income and dwarfed all previous state aid fines.
According to officials, Malikova, a diminutive Slovakian raised in France, was the driving force uncovering the effective tax rates paid by international firms, triggering complaints from diplomats who saw it as an attack on their national sovereignty. The commission calculated that in 2014 the iPhone maker had paid an effective tax rate of 0.005 per cent.
For all the EU’s sprawling powers, taxation remains an area where Europe’s treaty is largely silent. Changes to European tax law require the unanimous backing of all 27 member states, a hurdle that has prevented the transfer of significant tax powers to Brussels.
Malikova’s daring efforts to use existing state air rules to catch multinational tax avoidance were opposed by some inside the commission, including colleagues who had been responsible for helping to devise the tax planning schemes that were now under the microscope. “The tax rulings we were trying to decipher were incredibly complex. Many were not supportive of what [Malikova] was doing,” one former official said.
Malikova was headhunted by the commission from the Zurich trading desk of Credit Suisse during the financial crisis in 2008. She was involved in the commission’s monitoring of emergency bank restructurings in Ireland, Germany and the Netherlands, a period in which Brussels flexed its strict state aid regime to monitor how banks were using the taxpayer money that had helped to rescue them. Gert-Jan Koopman, the most senior EU official leading the Apple investigation, had been in charge of overseeing Spain’s bank restructurings.
In the post-financial crisis era, banks were the villains of the corporate world while Big Tech was enjoying the high point of its influence over global governments and regulators. This was before privacy scandals engulfing Facebook and Cambridge Analytica and the subsequent market power investigations that have resulted in Apple, Google, Amazon and Meta fighting escalating regulatory battles on both sides of the Atlantic.
At the heart of Brussels’ cases was a system of “transfer pricing”, where multinationals can shift profits to lower-tax jurisdictions, using subsidiaries. In Apple’s case, Brussels said the subsidiaries used to book sales outside the US were between the Irish divisions and a head office that was not based in any tax jurisdiction.
By 2013, this aggressive tax planning from technology powerhouses was coming under scrutiny, with the US Senate deriding Apple as one of America’s “largest tax avoiders”, saying that it had used “complex offshore entities” to reduce its tax base. In Britain, MPs called on Amazon’s UK business to pay corporation tax on sales it made in the country.
Malikova began compiling the EU’s tax case against Apple after hearing the testimony of Tim Cook, its chief executive, to the US Senate in 2013. A year later, the LuxLeaks scandal revealed hundreds of sweetheart tax arrangements rubber-stamped by Luxembourg, in the heart of the EU.
After the Apple decision was made public in 2016, Brussels redoubled its tax assault against US technology groups with a proposed EU digital services tax, which eventually ran aground after internal opposition and tariff threats from Trump. In 2020 the Biden administration wanted to stop countries from going after its Big Tech companies and led an international attempt to impose a minimum 15 per cent global levy on multinationals through the Organisation for Economic Co-operation and Development. With the Apple case stuck in the courts, in 2020 the commission made a futile attempt to use an obscure treaty instrument to launch an assault on its smaller low-tax member states.
With most of these tax reform pushes delayed or abandoned altogether, Brussels’ bill against Apple remains the biggest scalp that any global regulator has claimed in the war on multinational tax avoidance.
Today, European governments are again scrambling to fill spending black holes after the global energy crisis and the new commission is under pressure to revive its state aid armour to force governments to collect more corporate tax. About $1 trillion of profits were shifted by large multinationals to low-tax jurisdictions in 2022, according to the European Tax Observatory.
“The court’s judgment paves the way to re-open cases on the general principles,” Aleksandar Ivanovski, director of tax policy at CFE Advisors Europe, said. “Although some of the tax loopholes have been dealt with by legislative changes, there remains a lot for the new commission to do. Aggressive tax planning practices are still widespread in the EU.”
Malikova, who left her tax role days after the Apple announcement in August 2016, now works on investigating foreign subsidies under a new EU tool launched last year. She is one of the most vocal advocates for greater enforcement of EU anti-trust and competition rules and has called for a radical shake-up of the economic models that underpin the regulators’ work.
Barry Lynn, director of the Open Markets Institute, a leading anti-monopoly voice in the US, said that Malikova was a “rare” official who “combines the big picture with technical skill. She’s on the right side of the issues.”