Apple State Aid Ruling: A Wrong Way to Enforce the Benefits Principle?

Posted: 30 Oct 2016 Last revised: 13 Apr 2019

See all articles by Reuven S. Avi-Yonah

Reuven S. Avi-Yonah

University of Michigan Law School

Gianluca Mazzoni

University of Michigan at Ann Arbor - Law School - SJD Candidate

Date Written: October 27, 2016

Abstract

Following an in-depth investigation formally launched in June 2014, the European Commission has recently concluded that Ireland granted tax benefits of up to €13 billion to Apple in violation of the State aid rules. As a result, Ireland must now recover the illegal aid. That decision has been sharply criticized by Jack Lew, the U.S. Treasury Secretary, who believes only the Internal Revenue Service has the right to tax Apple’s foreign income, since most of the company’s research and development took place in the US. However, that is not the way the big EU countries, where sales are made, see things. Who is right? To whom does the income belong? This paper seeks to answer those questions by analyzing the impact of “Check-the-Box” regulations and EU Directives on profit shifting from high-tax countries like the U.K. and Germany to Luxembourg, the Caymans or other jurisdictions with lower or no taxes on certain items of income. Thus, the Apple case might be seen as an attempt to improve source-based taxation of active income, in response to the void that Treasury Department inadvertently or deliberately created in 1996 by weakening subpart F rules at the expense of EU trading partners.

Keywords: State Aid, Apple

JEL Classification: H26

Suggested Citation

Avi-Yonah, Reuven S. and Mazzoni, Gianluca, Apple State Aid Ruling: A Wrong Way to Enforce the Benefits Principle? (October 27, 2016). U of Michigan Law & Econ Research Paper No. 16-024. Available at SSRN: https://ssrn.com/abstract=2859996 or http://dx.doi.org/10.2139/ssrn.2859996

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

Gianluca Mazzoni

University of Michigan at Ann Arbor - Law School - SJD Candidate ( email )

Ann Arbor, MI
United States

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