The European Union’s order to Apple (AAPL.O) to pay 13 billion euros ($14 billion) in back taxes “defies reality and common sense”, the US firm said as the two sides sparred in a case key to the EU’s crackdown on sweetheart deals to multinationals.
The iPhone maker is appealing to Europe’s second highest court to overturn the European Commission’s 2016 ruling that it pay the record sum to Ireland.
Ireland, whose economy has benefited from investment by multinational companies attracted by low tax rates, is also challenging the Commission’s decision.
Apple also accused the Commission of using its powers to combat state aid “to retrofit changes to national law”, in effect trying to change the international tax system and in the process creating legal uncertainty for businesses.
The EU executive dismissed the arguments, saying it was not seeking to police international tax laws and accused Ireland of not having done its homework when assessing Apple’s taxes.
Apple’s arguments at the General Court, Europe’s second-highest, came after the EU executive in 2016 said the tech giant benefited from illegal state aid due to two Irish tax rulings which artificially reduced its tax burden for over two decades.
The case could make or break European Competition Commissioner Margrethe Vestager’s campaign which has also led to action against Starbucks (SBUX.O), Fiat (FCHA.MI), Engie (ENGIE.PA), Amazon (AMZN.O) and others.
Apple’s Chief Financial Officer Luca Maestri led a six-strong delegation to the court where a panel of five judges will hear arguments over two days.
“The Commission contends that essentially all of Apple’s profits from all of its sales outside the Americas must be attributed to two branches in Ireland,” Apple’s lawyer Daniel Beard told the court.
He said the fact the iPhone, the iPad, the App Store, other Apple products and services and key intellectual property rights were developed in the United States, and not in Ireland, showed the flaws in the Commission’s case.
“The branches’ activities did not involve creating, developing or managing those rights. Based on the facts of this case, the primary line defies reality and common sense,” Beard said.
“The activities of these two branches in Ireland simply could not be responsible for generating almost all of Apple’s profits outside the Americas.”
Beard dismissed criticism of the 0.005% tax rate paid by Apple’s main Irish unit in 2014, which was cited by the Commission in its decision, saying the regulator was just seeking “headlines by quoting tiny numbers”.