Apple, Google must pay billions in back taxes and fines, EU court rules

The final decisions in long-running cases amount to a major victory for Europe’s effort to regulate US tech firms. Photo / Getty Images

The European Union’s top court has ruled that Apple and Google must pay billions in back taxes and antitrust fines, respectively, in two landmark cases that delivered a major win for the bloc’s efforts to regulate US tech giants.

The European Court of Justice ruled that Apple must repay about US$14.35 billion for illegally receiving tax benefits in Ireland, and the court upheld a US$2.65b EU antitrust fine for Google, in two legal battles that the companies have fought for years.

The cases have been winding slowly through European courts while the California-based giants have ballooned in size and moved into new lines of business. The long lag time underscores concerns about whether governments and courts can keep pace with multinational corporations worth trillions of dollars as they constantly evolve to respond to artificial intelligence and other emerging technologies.

The Google and Apple cases were widely watched as bellwethers of success for Margrethe Vestager, known as the European Union’s digital czar, in her high-profile battles against Silicon Valley. As the longtime European commissioner for competition, she has sought to fine major tech companies for abuses of competition law, while also bringing challenges to multinational companies’ allegedly unfair tax arrangements.

Her efforts were praised by populists around the world wary of the broad power of US tech giants. But she has also faced criticism from industry leaders and some of her peers, who say the stringent regulatory environment has prevented rivals to the American tech sector from flourishing in Europe.

“Today is a big win for European citizens and for tax justice,” Vestager told reporters.

Vestager, who has served as the EU’s competition enforcer for about a decade, is scheduled to step down this year when a new commission begins its term. “It was the win that made me cry,” she said.

The rulings allowed Vestager and other EU officials to take a victory lap just a day after facing criticism in a long-anticipated report on the bloc’s tech sector. Former European Central Bank president Mario Draghi called for major overhauls to the EU’s approach to industrial and competition policy and for significant investments into its tech sector. The commission-ordered study found that “the EU’s regulatory stance towards tech companies hampers innovation”.

As the EU grapples with these questions, Google and Apple are aggressively investing in artificial intelligence. This week, Apple unveiled its iPhone 16 devices at a glitzy event in Cupertino, California, four products that aim to bring AI to the masses. Google, meanwhile, has been investing in AI chatbots and embedding AI features in its products, including a tool that allows shoppers to virtually try on dresses.

The companies have been appealing the EU penalties for nearly a decade. In the Apple case, the court backed a 2016 EU decision that said Ireland should recover up to €13b, or US$14.35b, in back taxes from the company after allowing it to underpay for nearly two decades. The arrangement, European officials said, artificially lowered taxes paid by Apple to a rate of less than 1% on European profits.

The court said it “gives final judgment in the matter” and confirmed the decision by the European Commission, the EU’s executive branch, that “Ireland granted Apple unlawful aid which Ireland is required to recover.”

Apple had challenged the EU order, and it won an earlier appeal against the back-taxes fines, which has now been struck down by the highest EU court. Apple and Ireland have previously denied any wrongdoing and rebutted allegations that Apple got preferential tax treatment.

In a statement to news outlets, Apple said the “case has never been about how much tax we pay, but which government we are required to pay it to”. Apple said the European Commission was “trying to retroactively change the rules and ignore that, as required by international tax law, our income was already subject to taxes in the US”.

In the Google ruling, the court upheld a 2017 European Commission decision to impose the antitrust fine on the company over “abuse of its dominant position” and for giving its shopping services an advantage over those of its competitors in search results.

Dismissing an appeal from Google and its parent company, Alphabet, the court described Google’s practices as discriminatory.

“We are disappointed with the decision of the Court, which relates to a very specific set of facts,” Google spokesman Rory O’Donoghue told The Washington Post. The company said it had made changes in 2017 to comply with the EU decision.

The 2016 ruling on Apple was Vestager’s first banner tax case against a global corporation, and she has since built a reputation for her moves against the business practices of tech giants, many of which established their European operations in low-tax nations such as Ireland and Luxembourg. Her aggressive enforcement efforts earned her the moniker “tax lady” from former president Donald Trump.