Judgment;Abstract — ECLI:EU:T:2020:338
Date: 2020-07-15
Language of the case: English
Court formation: Seventh Chamber, Extended Composition
Subject matter: State aids;Competition
Procedure: Action for annulment - successful
Origin: Ireland

summary nature of the extracts from the minutes reproduced by the Commission in Tables 4 and 5 of the contested decision is sufficient to allow the reader to understand how the company’s key decisions in each tax year, such as approval of the annual accounts, were taken and recorded in the relevant board minutes. 306 The resolutions of the boards of directors which were recorded in those minutes covered regularly (that is to say, several times a year), inter alia, the payment of dividends, the approval of directors’ reports and the appointment and resignation of directors. In addition, less frequently, those resolutions concerned the establishment of subsidiaries and powers of attorney authorising certain directors to carry out various activities such as managing bank accounts, overseeing relations with governments and public bodies, carrying out audits, taking out insurance, hiring, purchasing and selling assets, taking delivery of goods and dealing with commercial contracts. Moreover, it is apparent from those minutes that individual directors were granted very wide managerial powers. 307 In addition, with regard to the cost-sharing agreement, it is apparent from the information submitted by ASI and AOE that the various versions of that agreement in existence during the relevant period were signed by members of the respective boards of directors of those companies in Cupertino. 308 Moreover, according to the detailed information provided by ASI and AOE, it is the case for both ASI and AOE that, among ASI’s 14 directors and AOE’s 8 directors on their respective boards for each tax year during the period when the contested tax rulings were in force, there was only one director who was based in Ireland. 309 Consequently, the Commission erred when it considered that ASI and AOE, through their management bodies, in particular their boards of directors, did not have the ability to perform the essential functions of the companies in question by, where appropriate, delegating their powers to individual executives who were not members of the Irish branches’ staff. (d) Conclusions concerning the activities within the Apple Group 310 It is apparent from the foregoing considerations that, in the present instance, the Commission has not succeeded in showing that, in the light, first, of the activities and functions actually performed by the Irish branches of ASI and AOE and, second, of the strategic decisions taken and implemented outside of those branches, 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. 311 In those circumstances, it is necessary to uphold the complaints raised by Ireland in the first plea in law in Case T‑778/16 and by ASI and AOE in the third and fourth pleas in law in Case T‑892/16 regarding the Commission’s factual assessments concerning the activities of the Irish branches of ASI and AOE and the activities outside of those branches. 4. Conclusion regarding the Commission’s assessment that there was a selective advantage on the basis of its primary line of reasoning 312 In the light of the findings in paragraph 249 above regarding the Commission’s erroneous assessments of normal taxation under the Irish tax law applicable in the present instance and the findings in paragraph 310 above regarding the Commission’s erroneous assessments of the activities within the Apple Group, it is necessary to uphold the pleas in law alleging that, in its primary line of reasoning, the Commission did not succeed in showing that, by issuing the contested tax rulings, the Irish tax authorities granted ASI and AOE an advantage for the purposes of Article 107(1) TFEU. 313 It is therefore not necessary to examine the pleas in law contesting the Commission’s assessments in its primary line of reasoning regarding the selectivity of the measures at issue and the lack of justification for them. 314 Therefore, it is appropriate to go on to examine the pleas in law submitted by Ireland and ASI and AOE contesting the assessments made by the Commission in connection with its subsidiary and alternative lines of reasoning in the contested decision. E. Pleas in law contesting the assessments made by the Commission in connection with its subsidiary line of reasoning (fourth plea in law in Case T‑778/16 and eighth plea in law in Case T‑892/16) 315 In connection with its subsidiary line of reasoning in the contested decision (recitals 325 to 360), the Commission contended that, even if the Irish tax authorities had been fully entitled to accept that the Apple Group IP licences held by ASI and AOE should not have been allocated to their Irish branches, the profit allocation methods endorsed in the contested tax rulings had nonetheless led to a result departing from a reliable approximation of a market-based outcome in line with the arm’s length principle, because those methods undervalued the annual chargeable profits of ASI and AOE in Ireland. 316 More specifically, in particular in recitals 328 to 330 of the contested decision, the Commission contended that the profit allocation methods endorsed in the contested tax rulings constituted one-sided profit allocation methods which resembled the transaction net margin method (‘the TNMM’) laid down by the OECD Transfer Pricing Guidelines. 317 According to the Commission, the profit allocation methods endorsed by the contested tax rulings were vitiated by errors resulting from (i) the choice of ASI and AOE’s Irish branches as the focus or ‘tested party’ in one-sided profit allocation methods (recitals 328 to 333 of the contested decision), (ii) the choice of the operating costs as the profit level indicator (recitals 334 to 345 of the contested decision), and (iii) the levels of return accepted (recitals 346 to 359 of the contested decision). According to the Commission, each of those errors entailed a reduction in the tax liability of those companies in Ireland as compared with non-integrated companies whose chargeable profits reflected prices negotiated at arm’s length on the market (recital 360 of the contested decision). 318 Thus, it must be held that all the assessments made by the Commission in connection with its subsidiary line of reasoning seek to establish the existence of an advantage that was granted to ASI and AOE because the profit allocation methods approved by the contested tax rulings had not led to arm’s length profits. 319 In that regard, it should be noted that the mere non-observance of methodological requirements, in particular in connection with the OECD Transfer Pricing Guidelines, is not a sufficient ground for concluding that the calculated profit is not a reliable approximation of a market-based outcome, let alone that the calculated profit is lower than the profit that should have been obtained if the method for determining transfer pricing had been correctly applied. Thus, merely stating that there has been a methodological error is not sufficient, in itself, to demonstrate that the tax measures at issue have conferred an advantage on the recipients of those measures. Indeed, the Commission must also demonstrate that the methodological errors that have been identified have led to a reduction in the chargeable profit and thus in the tax burden borne by those recipients, in the light of the tax burden which they would have borne pursuant to the normal rules of taxation under national law had the tax measures in question not been adopted. 320 It is in the light of the foregoing considerations that the arguments put forward by Ireland and by ASI and AOE regarding the Commission’s assessments as summarised in paragraphs 315 to 317 above must be analysed. 321 Ireland and ASI and AOE raise, first, complaints regarding the Commission’s assessments of the application of the TNMM and the fact that it relied on instruments developed within the OECD. Next, Ireland and ASI and AOE contest the three methodological errors specifically referred to by the Commission, namely those concerning the choice of ASI and AOE’s Irish branches as the ‘tested party’ for the profit allocation methods, the choice of the operating costs as the profit level indicator, and the levels of return accepted in the contested tax rulings. 1. The assessment made regarding the profit allocation methods endorsed by the contested tax rulings in the light of the TNMM 322 The parties disagree, in essence, as to the extent to which the Commission was entitled to rely, for the purposes of its subsidiary line of reasoning, on the arm’s length principle, as laid down in the OECD Transfer Pricing Guidelines, to which the Authorised OECD Approach refers. More specifically, they disagree as to whether the Commission was entitled to use the TNMM, as laid down in, inter alia, those guidelines, in order to ascertain whether the profit allocation method endorsed by the contested tax rulings had led to ASI and AOE’s chargeable profits being lower than those of a company in a comparable situation. 323 In the first place, concerning the application of the Authorised OECD Approach, it is necessary to recall the considerations set out in paragraphs 233 to 245 above. Thus, in essence, although the Authorised OECD Approach has not been incorporated into Irish tax law, the way in which section 25 of the TCA 97 is applied by the Irish tax authorities overlaps, for the most part, with the analysis proposed by the Authorised OECD Approach. First, the application of section 25 of the TCA 97, as described by Ireland in its application and as confirmed by Ireland during the hearing, requires, first, an analysis of the functions performed, the assets used and the risks assumed by the branches, which, in essence, corresponds to the first step of the analysis proposed by the Authorised OECD Approach. Second, regarding the second step of that analysis, it should be borne in mind that the Authorised OECD Approach refers to the OECD Transfer Pricing Guidelines. In that regard, neither Ireland nor ASI and AOE have challenged the Commission’s assertion, set out in, inter alia, recital 265 of the contested decision, that the profit allocation methods approved by the contested tax rulings resembled the one-sided transfer pricing methods referred to in the OECD Transfer Pricing Guidelines, such as the TNMM. 324 In the second place, it should be noted that, in the context of the administrative procedure, Ireland and Apple Inc. submitted ad hoc reports, drawn up by their respective tax advisors, which specifically relied on the TNMM for the purpose of demonstrating that ASI and AOE’s chargeable profits in Ireland, which were declared in Ireland on the basis of the contested tax rulings, fell within an arm’s length range. Ireland and ASI and AOE cannot criticise the Commission for having relied on the Authorised OECD Approach or for having used the TNMM in connection with its subsidiary line of reasoning, when they themselves relied thereon in the context of the administrative procedure. 325 Having regard to the foregoing, the complaints regarding the use by the Commission of the TNMM, as laid down in, inter alia, the OECD Transfer Pricing Guidelines, in order to ascertain whether the profit allocation method endorsed by the contested tax rulings had led to a reduction in ASI and AOE’s tax liability must be rejected. 326 In those circumstances, it will be necessary to go on to examine Ireland and ASI and AOE’s arguments regarding the application by the Commission of the TNMM in connection with its subsidiary line of reasoning, in order to assess whether the Commission succeeded in demonstrating that the contested tax rulings had conferred an advantage on ASI and AOE. 327 In that regard, the parties disagree as regards the Commission’s statements relating to three errors in the profit allocation method endorsed by the contested tax rulings, concerning, first, the choice of the branches as tested parties, second, the choice of the operating costs as the profit level indicator and, third, the levels of return accepted. 2. The choice of ASI and AOE’s Irish branches as the ‘tested party’ when applying the profit allocation methods 328 It should be borne in mind that, in recitals 328 to 333 of the contested decision, the Commission noted that, even assuming that the Apple Group’s IP licences had been correctly allocated to the head offices of ASI and AOE, those head offices had been unable to perform complex functions without any staff or physical presence. By contrast, according to the Commission, the Irish branches had performed IP-related functions that were crucial in building brand awareness and brand recognition in the EMEIA region. The Commission inferred from this that the Irish branches of ASI and AOE had been incorrectly chosen as tested parties. 329 In that regard, it should be noted that the TNMM constitutes a one-sided method of determining transfer pricing. It consists in determining, relative to an appropriate base, the net profit obtained by a taxpayer, namely the ‘tested party’, from a controlled transaction or from controlled transactions which are closely linked or continuous. In order to determine the appropriate base, it is necessary to choose a profit level indicator, such as costs, sales or assets. The net profit indicator obtained by the taxpayer from a controlled transaction must be determined by reference to the net profit indicator that the same taxpayer or an independent undertaking obtains from comparable transactions on the free market. The TNMM therefore requires the identification of a party to the transaction in respect of which an indicator is tested. This is the ‘tested party’. 330 In addition, according to the OECD Transfer Pricing Guidelines of 2010, to which the Commission makes reference in, inter alia, recitals 94 and 255 of the contested decision as useful guidance, and which are also relied on by the ad hoc reports submitted by Ireland and Apple Inc., the choice of tested party must be in line with the functional analysis of the transaction. Furthermore, it is stated that, as a general rule, the tested party is the party to which a transfer pricing method can be applied in the most reliable manner and for which the most reliable comparables can be identified. This will most often be the party that has the least complex functional analysis. 331 First, it should be emphasised that, in the contested decision, in particular recital 333 thereof, the Commission merely asserted that the error as to the determination of the entity to be tested had led to a decrease in ASI and AOE’s chargeable profit. 332 As has been stated in paragraph 319 above, the mere non-observance of methodological requirements when applying a profit allocation method is not a sufficient ground for concluding that the calculated profit is not a reliable approximation of a market-based outcome, let alone that the calculated profit is lower than the profit that should have been obtained if the method for determining transfer pricing had been correctly applied. 333 Accordingly, the mere statement by the Commission that there is a methodological error resulting from the choice of tested party in connection with the profit allocation methods used in respect of the Irish branches of ASI and AOE approved by the contested tax rulings, even assuming that error is established, is not sufficient, per se, to demonstrate that those tax rulings conferred an advantage on ASI and AOE. Indeed, the Commission would also have needed to demonstrate that such an error had led to a reduction in the chargeable profit of those two companies that they would not have obtained had those rulings not been issued. However, in the present instance, the Commission did not put forward evidence to prove that the choice of ASI and AOE’s Irish branches as tested parties had led to a reduction in the chargeable profit of those companies. 334 Secondly and in any event, it should be noted that in the context of the TNMM, it is necessary to choose a party to test beforehand, according to, in particular, the functions performed by that party, in order to be able subsequently to calculate the return in a transaction related to those functions. The fact that it is normally the party that performs the least complex functions that is chosen does not predetermine the functions that are actually performed by the chosen party or the way in which the return for the functions performed is established. 335 Indeed, the OECD Transfer Pricing Guidelines do not state which party to the transaction must be chosen, but recommend choosing the undertaking for which reliable data regarding the most closely comparable transactions can be found. It is then specified that this often means choosing the associated undertaking which is the least complex of the undertakings concerned by the transaction and which does not have any valuable intangibles or unique assets. It follows that those guidelines do not necessary require that the least complex entity be chosen, but that they simply advise choosing the entity for which the greatest amount of reliable data exists. 336 Thus, provided that the functions of the tested party have been correctly identified, and that the return for those functions has been correctly calculated, the fact that one party or another has been chosen as the tested party is irrelevant. 337 Thirdly, it should be borne in mind that the Commission based its subsidiary line of reasoning on the premiss that the Apple Group’s IP licences were correctly allocated to the head offices of ASI and AOE. 338 In that regard, as is correctly emphasised by Ireland and ASI and AOE, it should be noted that IP constitutes the key asset for an undertaking, such as the Apple Group, whose business model is essentially based on technological innovations. That IP may therefore be regarded, in the present instance, as a unique asset for the purposes of the OECD Transfer Pricing Guidelines. 339 However, as is apparent from the Authorised OECD Approach, in principle, in the case of an undertaking such as the Apple Group, the mere fact of one of the parties being the owner of the IP involves the performance of significant people functions in relation to that intangible, such as active decision-making as regards setting up the development programme giving rise to that IP and active management of that programme. Allocating the IP to a part of the undertaking may therefore be considered an indication that that part performs complex functions. 340 It follows that the Commission cannot claim, in its subsidiary line of reasoning, that the Apple Group’s IP was correctly allocated to the head offices of ASI and AOE and, at the same time, that it is the Irish branches of those two companies which performed the most complex functions in relation to that IP, without providing any evidence as to the actual performance of such complex functions by those branches. 341 By contrast, as has been stated in paragraphs 281 and 290 above, the Commission did not succeed in demonstrating in the present instance that those branches had actually performed functions and made crucial decisions in respect of the Apple Group’s IP, in particular as regards its design, creation and development. 342 Fourthly, it should be noted that the contested tax rulings are based on the descriptions of the functions performed by the Irish branches of ASI and AOE set out in the requests made by the Apple Group to the Irish tax authorities. As is apparent from recitals 54 to 57 of the contested decision, those functions consist in the procurement, sale and distribution of Apple-branded products to related parties and third-party customers in the EMEIA region (in the case of ASI’s branch) and in the manufacture and assembly of a specialised range of computer products in Ireland (in the case of AOE’s branch). 343 It must be pointed out that those functions may be regarded, prima facie, as easily identifiable and not particularly complex. In any event, they do not constitute unique and specific functions for which it is difficult to identify the comparables. On the contrary, these are common and relatively standard functions in commercial relations between undertakings. 344 It is true that the information submitted by the Apple Group to the Irish tax authorities prior to the issuing of the contested tax rulings was very concise on the subject of the functions, assets and risks of ASI and AOE’s Irish branches. The contested tax rulings were issued after the Apple Group’s tax advisors sent the Irish tax authorities some short letters in which they briefly described the activities of ASI and AOE’s branches and proposed a methodology for calculating the chargeable profits of those two companies in Ireland. The content of those exchanges is fairly vague and makes it apparent that the discussions between the Irish tax authorities and the Apple Group’s tax advisors at the two meetings held were decisive for the purpose of determining the chargeable profit of those companies, without there being any documented objective and detailed analysis regarding the functions of the branches and the assessment of those functions. 345 Thus, unlike the ad hoc reports that were submitted by Ireland and Apple Inc. ex post facto in the context of the administrative procedure, no profit allocation report or any additional information was provided to the Irish tax authorities prior to the issuing of the contested tax rulings. 346 Furthermore, as was confirmed at the hearing, the information concerning the activities of ASI and AOE’s Irish branches provided before the 1991 tax ruling were not significantly added to prior to the issuing of the 2007 tax ruling and were not subsequently updated. 347 That lack of evidence submitted to the Irish tax authorities concerning the functions actually performed by the Irish branches and the assessment of those functions for the purpose of determining the profit to be allocated to those branches may be regarded as a methodological defect in the application of section 25 of the TCA 97, which requires an analysis to be conducted at the outset regarding the functions performed, the assets used, and the risks assumed by the branches. 348 However, as regrettable as that methodological defect is, the Commission, in carrying out its State aid control under Article 107 TFEU, cannot, for its part, confine itself to stating that the choice of ASI and AOE’s Irish branches as the tested parties when applying the profit allocation method was incorrect, without proving that the functions actually performed by those branches constituted particularly complex or unique functions, or functions that were difficult to identify, so that the comparables for such a one-sided profit allocation method would not have been identifiable or reliable and, consequently, the resulting allocation would necessarily have been incorrect. 349 Furthermore and in any event, even assuming that such an error in the profit allocation method is established, as has been outlined in paragraphs 319 and 332 above, the Commission must prove that the profit allocation in question led to a mitigation of the tax burden of the companies in question as compared with the tax burden which they would have borne had the contested tax rulings not been issued, such that an advantage was actually granted. 350 However, the Commission has not submitted any evidence in connection with its subsidiary line of reasoning to demonstrate that such a methodological defect, resulting from the lack of information submitted to the Irish tax authorities, led to a reduction in the tax base of ASI and AOE as a result of the application of the contested tax rulings. 351 Having regard to the foregoing considerations, it is necessary to uphold the complaints raised by Ireland and by ASI and AOE regarding the Commission’s statements concerning the incorrect choice of ASI and AOE’s Irish branches as the tested parties when applying the profit allocation methods on which the contested tax rulings were based. 3. The choice of the operating costs as the profit level indicator 352 As a preliminary point, it should be borne in mind that, in the contested tax rulings (see paragraphs 12 to 21 above), the chargeable profits of the Irish branches were calculated as a margin of the operating costs. 353 In recitals 334 to 345 of the contested decision, the Commission argued that, assuming that the Irish branches could have been regarded as the tested parties for the purposes of the one-sided profit allocation method, the choice of those branches’ operating costs as the profit level indicator was incorrect. According to the Commission, the profit level indicator in a one-sided profit allocation method must reflect the functions performed by the tested party, which was not the situation in the present instance. Indeed, the Commission contended that ASI’s sales, and not the operating costs of its Irish branch, were a better reflection of the activities carried on and the risks assumed by the Irish branch and thus of its contribution to ASI’s turnover. 354 Consequently, the Commission (recital 345 of the contested decision) concluded that, because of the use of the operating costs as the profit level indicator in the profit allocation method approved by the contested tax rulings, the chargeable profits of ASI and AOE in Ireland did not reflect a reliable approximation of a market-based outcome in line with the arm’s length principle. As a result, in its view, the Irish tax authorities had conferred a selective advantage on ASI and AOE as compared with non-integrated companies, whose chargeable profits reflected prices negotiated at arm’s length on the market. (a) The choice of the operating costs as the profit level indicator for the Irish branch of ASI 355 Regarding, specifically, the Irish branch of ASI (recital 336 of the contested decision), the Commission considered that it was inappropriate to rely on the operating costs, which would be ‘generally’ recommended for analysing the profits of low-risk distributors. It contended that the Irish branch of ASI was not such a distributor, in so far as that branch had assumed risks connected with turnover, warranties, and third-party contractors. 356 It should be noted at the outset that the Commission did not specifically state the source on which it was relying in order to make such an assertion. In addition, the use of the term ‘generally’ indicates that it was not ruling out the use of operating costs as a profit level indicator in certain situations. 357 Besides the fact that the argument presented by the Commission is imprecise, it should be noted that such an argument is not in line with the OECD Transfer Pricing Guidelines, on which the Commission relied in connection with its subsidiary line of reasoning, as is correctly argued by Ireland and ASI and AOE. It follows from paragraph 2.87 of those guidelines that the profit level indicator must be focused on the value of the functions of the tested party, taking account of its assets and its risks. Therefore, according to those guidelines, the choice of profit level indicator is not fixed for any type of function, provided that that indicator reflects the value of the function in question. 358 In any event, it is necessary to examine whether the Commission succeeded in demonstrating that the choice of the operating costs as the profit level indicator was not appropriate in the present instance and, in so far as the risks assumed by the branches must be taken into account, whether it was correct to conclude that the Irish branch of ASI had assumed risks connected with turnover, warranties, and third-party contractors. (1) The appropriate profit level indicator 359 In recitals 340 and 341 of the contested decision, the Commission contended that the choice of the operating costs as the profit level indicator was not appropriate, inasmuch as that choice did not properly reflect the risks assumed and the activities carried out by the Irish branch of ASI, and that sales would have been a more appropriate indicator. It contended that, for the same reasons, the Berry ratio used in the ad hoc reports submitted by Ireland and Apple Inc. was not suitable for determining an arm’s length return for the functions performed by that branch. 360 In the first place, it should be noted that the Commission bases its statements, in essence, on the argument that the Irish branch of ASI must be regarded as having assumed risks and performed functions relating to ASI’s operations, in so far as that company would have been unable to do so itself given its lack of staff and physical presence. 361 In that regard, it should be borne in mind that the considerations outlined, in connection with assessing the primary line of reasoning, in paragraph 259 above, according to which the allocation of functions, and thus profits, to a branch using an ‘exclusion’ approach is not in line with either Irish law or the Authorised OECD Approach, in so far as such an analysis does not enable it to be demonstrated that those functions were actually performed by the Irish branches. 362 Accordingly, in order to demonstrate that the choice of the operating costs of the Irish branch of ASI as the profit level indicator for that branch was incorrect, the Commission could not allocate the functions performed and risks assumed by ASI to its Irish branch without demonstrating that that branch had actually performed those functions and assumed those risks. 363 In the second place, it should be noted that, in recital 342 of the contested decision, the Commission itself refers to paragraph 2.87 of the OECD Transfer Pricing Guidelines. As has been noted in paragraph 357 above, both sales and operating costs may constitute an appropriate profit level indicator under those guidelines. 364 More specifically, it is stated in paragraph 2.87 of the OECD Transfer Pricing Guidelines that the choice of the profit level indicator should be relevant for the purpose of demonstrating the value of the functions of the tested party in the transaction under review, taking account of its assets and its risks. 365 However, the Commission, by stating, in recitals 337 and 338 of the contested decision, that the use of the operating costs as the profit level indicator does not reflect the risks connected with turnover, warranties, and products handled by third-party contractors and that the sales figure would be more appropriate as a profit level indicator, does not answer the question whether the operating costs suitably reflect the value contributed by the Irish branch of ASI in view of the functions, assets and risks assumed by that branch. Indeed, the Commission merely states that ASI’s sales would have been an appropriate profit level indicator without demonstrating why, in the present instance, the operating costs of its branch were not capable of reflecting the value which that branch had contributed to the company’s operations through the functions, risks and assets for which it had actually been responsible within that company. 366 In the third place, regarding the Berry ratio, it should be borne in mind that that ratio was used in the ad hoc reports submitted by Ireland and Apple Inc. as the profit level indicator in order to prove ex post facto that the profits allocated to ASI and AOE under the contested tax rulings fell within the arm’s length ranges. 367 However, in recital 340 of the contested decision, the Commission rejected the use of that ratio as a financial ratio for estimating the arm’s length remuneration in the present instance. The Commission contended that the situations in which the Berry ratio could be used according to the OECD Transfer Pricing Guidelines did not correspond to the situation of ASI’s Irish branch. 368 In that regard, it should be noted that, in paragraph 2.101 of the OECD Transfer Pricing Guidelines, to which the Commission refers in recital 342 of the contested decision, it is stated that, in order for the Berry ratio to be an appropriate means of testing the remuneration of a controlled transaction, it is necessary, first, that the value of the functions performed in the controlled transaction be proportional to the operating costs, second, that the value of the functions performed in the controlled transaction not be materially affected by the value of the products distributed, in other words, that it not be proportional to the turnover, and, third, that the taxpayer not perform, in the controlled transactions, any other significant function (for example, manufacturing) that should be remunerated using another method or another financial indicator. 369 First of all, it must be noted that, in the contested decision, the Commission did not argue that the value of the operating costs taken into account in the contested tax rulings was not proportional to the value of the functions performed by the Irish branch of ASI, as described in recitals 54 and 55 of the contested decision. It must be pointed out that the Commission has not put forward arguments or submitted evidence demonstrating that not all the costs that should have been regarded as operating costs were taken into consideration and that that failure to take those costs into consideration led to a selective advantage for ASI and AOE. Nor did it seek to demonstrate that the value allocated to the costs that had been taken into account was too low and that a selective advantage had resulted from it. Indeed, it merely contested the very principle of taking operating costs into account as a profit level indicator. 370 Next, it should be noted that there is no connection between the operating costs of the Irish branch of ASI and that company’s turnover. That lack of correlation was acknowledged by the Commission itself in recital 337 of the contested decision. 371 Lastly, it is necessary to recall the considerations set out in paragraphs 342 and 343 above concerning the non-complex and easily identifiable nature of the functions performed by the Irish branch of ASI. That branch, in essence, performed distribution functions. It was not responsible for manufacturing functions or other complex functions connected with, inter alia, technological development or IP. 372 Accordingly, contrary to the Commission’s assertions, the conditions for applying the Berry ratio, as stated in the OECD Transfer Pricing Guidelines, are satisfied in the case of ASI’s Irish branch. 373 Having regard to the foregoing considerations, it must be held that the Commission did not succeed in demonstrating that the choice of the operating costs was not appropriate as a profit level indicator for ASI’s Irish branch. 374 In any event, even assuming that it can be argued, as is asserted by the Commission in recital 336 of the contested decision, that operating costs cannot serve as a profit level indicator except for ‘low-risk’ distributors, it is necessary to assess whether the Irish tax authorities were entitled to consider that the Irish branch of ASI had not assumed the risks that, according to the Commission, should have been allocated to that branch. (2) The risk connected with turnover 375 In recital 337 of the contested decision, the Commission noted that ASI had assumed the risk connected with turnover and that, in so far as its head office had no staff to manage those risks, ‘it [had to] be assumed’ that the Irish branch had assumed those risks. It added that the choice of the operating costs did not reflect that risk, which was borne out by the fact that the operating costs had remained relatively stable during the reference period whereas the turnover had increased exponentially. 376 First of all, it must be pointed out that the Commission’s argument is based, according to the very wording of the contested decision, on an assumption. 377 Next, it should be noted that the Commission was not in a position to explain in the contested decision exactly what the risk connected with turnover was. 378 When it was questioned in that regard during the hearing, the Commission stated that that risk was rather an inventory risk, namely the risk that the products listed in ASI’s inventory, the distribution of which was ensured by the Irish branch, would remain unsold. 379 In order to support its argument that the Irish branch of ASI had assumed the risk connected with a potential decrease in ASI’s sales, the Commission merely allocated that risk using an exclusion approach, which, as has been stated in paragraphs 361 and 362 above, does not constitute a valid basis for allocation. 380 In addition, at the hearing, the Commission referred to Figure 9 of the contested decision (set out in recital 122 of that decision), which reproduces a table included in the cost-sharing agreement concerning the allocation of risks between Apple Inc., on the one hand, and ASI and AOE, on the other. As has been stated in paragraphs 263 to 268 and paragraph 271 above, that table compiles the list of risks which ASI could be called on to assume, but does not prove that those risks were actually borne by ASI. What is more, that table concerns ASI, and not its Irish branch. 381 By contrast, Apple Inc., ASI and AOE submitted, in the context of both the administrative procedure and the present action, evidence demonstrating that the framework agreements with the manufacturers of Apple-branded products (or OEMs) had been concluded centrally in respect of the Apple Group as a whole by Apple Inc. and ASI in the United States. 382 In addition, Apple Inc., ASI and AOE submitted evidence concerning other framework agreements, also concluded centrally in respect of the Apple Group as a whole, concluded with the main buyers of Apple-branded products, namely telecommunications operators, in particular in the EMEIA region. 383 Furthermore, Apple Inc., ASI and AOE submitted evidence concerning the international pricing policy for Apple-branded products, which is set centrally in respect of the Apple Group as a whole. 384 It must be pointed out that the evidence submitted shows that the Irish branch of ASI did not take part in negotiations relating to framework agreements or in the signing of such agreements, whether they be those concluded with the suppliers of the products it distributes, namely the OEMs, or those concluded with the customers to whom it distributes Apple-branded products, such as telecommunications operators. Indeed, that branch is not even mentioned in those agreements. 385 In addition, the evidence submitted shows that the Irish branch of ASI had no decision-making powers concerning supply (namely determining the products to be manufactured), demand (namely determining the customers to whom the products were to be sold), or the prices at which those Apple-branded products were sold, in particular in the EMEIA region, in so far as those elements were determined under the framework agreements. 386 Accordingly, as is correctly argued by ASI and AOE, the Irish branch of ASI cannot be allocated the risks inherent in products remaining unsold or a drop in demand, in so far as both supply and demand are determined centrally, outside that branch. 387 The evidence submitted confirms the role of ASI’s Irish branch that emerges from the ad hoc reports submitted by Ireland and Apple Inc., according to which that branch, as a distributor, was responsible for ensuring the flow of products between producers and customers and for gathering and communicating at group level information regarding supply and demand forecasts for the EMEIA region and regarding inventory levels. The fact that the Irish branch of ASI performed ‘monitoring’ functions for the EMEIA region does not mean that it is deemed to have assumed the economic risk that might have resulted from a decrease in ASI’s turnover in that region. 388 Lastly, concerning the assertion, set out in recital 337 of the contested decision, that ASI’s sales increased exponentially during the reference period whereas the operating costs of its Irish branch remained stable, it should be pointed out that that fact is more an indication of the limited impact of the activities carried out by the Irish branch of ASI on ASI’s trading activity as a whole. 389 In addition, such a fact is not sufficient, in itself, to call in question the choice of the operating costs as the profit level indicator. Indeed, the Commission established its line of reasoning without indicating the reason why an increase in ASI’s sales would have necessarily involved an increase in the profits to be allocated to its Irish branch. 390 Consequently, it must be held that the Commission did not succeed in demonstrating that the Irish branch of ASI was responsible for the risk connected with turnover. (3) The risk connected with product warranties 391 In recital 338 of the contested decision, the Commission stated that, in so far as ASI provided warranties for all the products sold in the EMEIA region and in so far as those warranties constituted its most significant liability, the risks relating thereto could not have been assumed by ASI, which had no staff, but, necessarily, by its Irish branch. 392 More specifically, the Commission contended, in recital 338 of the contested decision, that those risks constituted ASI’s most significant liability, which was transferred to Apple Distribution International (ADI), a company related to the Apple Group. The Commission referred, in that regard, to recital 135 of the contested decision, in which it is explained that ADI took over distribution activities in the EMEIA region on ASI’s behalf and that, to that end, under a protocol dated 23 April 2012, ADI assumed ASI’s liabilities, the most significant element of which was the provisions relating to product warranties. 393 First, those factual elements highlighted by the Commission bear witness to the fact that the warranties for Apple-branded products in the EMEIA region were assumed by ASI and that the provisions for those warranties were part of that company’s liabilities until 2012. However, that information does not, in itself, enable a connection to be established between the risks represented by those warranties granted by ASI, given material expression in the provisions set out in the liabilities of that company’s balance sheet, and its Irish branch. In addition, the Commission’s theory is not valid for the years after 2012, when those risks were transferred to ADI. However, the Commission did not confine its line of reasoning to the period prior to 2012. 394 Secondly, the risk connected with product warranties cannot be allocated to the Irish branch of ASI if that branch is not responsible, from an economic point of view, for claims invoking such a warranty. The Commission did not adduce evidence demonstrating that the Irish branch of ASI had assumed such a responsibility. 395 Thirdly, while it is not disputed that the Irish branch of ASI managed the AppleCare after-sales service, as has been noted in paragraphs 276 to 278 above, the functions performed by that branch in connection with that service are, however, of an ancillary nature in relation to the warranties themselves. 396 In order to challenge the Commission’s line of argument, Ireland and ASI and AOE rely on, inter alia, the ad hoc reports which they submitted and on which the Commission itself relied, which describe the activities of the Irish branches connected with warranties for Apple-branded products. According to those reports, the Irish branch of ASI was responsible, in connection with the AppleCare service, for, in essence: – gathering data regarding defective products; – managing the network of authorised third-party repairers; – distributing components for repair within that network; – managing the call centre. 397 Having regard to the ancillary nature of those functions, it may not be concluded, in the absence of other evidence, that the Irish branch of ASI bore the economic consequences connected with product warranties, as ASI and AOE confirmed during the hearing. 398 In addition, the fact relating to the significant number of employees assigned to the AppleCare service is not, in itself, decisive, in view of the fact that that service includes the call centre for the after-sales services, which is, naturally, a function that requires a large number of staff. 399 Furthermore, the Commission did not adduce other evidence demonstrating that the staff of ASI’s Irish branch would have been actively involved in adopting decisions significantly affecting the risks connected with warranties for Apple-branded products sold by ASI and that that branch was ultimately responsible for those risks, economically speaking, by virtue of those warranties. 400 In those circumstances, it cannot be inferred from the fact that the Irish branch of ASI managed the AppleCare service that that branch assumed the risks connected with warranties for Apple-branded products. (4) The risks connected with the activities of third-party contractors 401 In recital 339 of the contested decision, the Commission contended that, in so far as ASI systematically outsourced its distribution function to third-party contractors outside Ireland, the total sales figure would have been a more appropriate profit level indicator, in view of the risk borne by the Irish branch in relation to products which were not handled in Ireland. 402 It should be noted at the outset that the response to the question as to what risk would have been created by the circumstance referred to in paragraph 401 above and how that risk would have been borne by the Irish branch of ASI is not clear from reading recital 339 of the contested decision. Such an assessment, which lends itself to diverging interpretations, cannot be accepted as validly supporting the Commission’s subsidiary line of reasoning. 403 In any event, when questioned on that point during the hearing, the Commission stated that the risk when ASI outsourced its distribution functions to third-party contractors while remaining the owner of those products was the same type of risk as that referred to in recital 337 of the contested decision, namely a risk connected with the possibility of a decrease in demand and the possibility of unsold products. 404 Accordingly, assuming that the risk referred to by the Commission in recital 339 of the contested decision can be understood as being the same type of risk as the risk connected with turnover identified in recital 337 of the contested decision, the same considerations as set out in paragraphs 376 to 390 above also apply to this type of risk, which has still not been shown to have been assumed by the Irish branch of ASI. 405 Furthermore, assuming such a risk exists, the mere fact that certain distribution activities have been outsourced to third-party contractors outside Ireland, cannot, without further information, support the argument that such a risk had to be allocated to the Irish branch of ASI. 406 Indeed, the fact that, following transactions with suppliers and customers negotiated and organised in the United States, the distribution of the products in question is handled outside Ireland by third-party contractors would rather strengthen the argument that the risks that could derive therefrom are not borne by the Irish branch of ASI. 407 It is apparent from the foregoing considerations that the Commission did not succeed in demonstrating that the risks identified in recitals 336, 337 and 339 of the contested decision had actually been borne by the Irish branch of ASI. (b) The choice of the operating costs as the profit level indicator for the Irish branch of AOE 408 Regarding AOE, in recitals 343 and 344 of the contested decision, the Commission noted that, in view of the fact that AOE had no physical presence and had no employees capable of managing the risks outside its Irish branch, that branch had to be regarded as assuming all the risks, in particular those relating to inventories. In those circumstances, it considered that a profit level indicator including the total costs would have been more appropriate than the operating costs. 409 The Commission bases its arguments on the OECD Transfer Pricing Guidelines. However, it should be noted that, as has been stated in paragraph 357 above, those guidelines do not recommend the use of any particular profit level indicator, such as the total costs, and do not preclude the use of operating costs as a profit level indicator. 410 In addition, according to paragraph 2.93 of the OECD Transfer Pricing Guidelines, to which the Commission refers in recital 343 of the contested decision, ‘in applying a cost-based [TNMM], fully loaded costs are often used’. Accordingly, it is not inconceivable, in principle, that operating costs may constitute an appropriate profit level indicator. 411 Furthermore, the Commission’s argument that a profit level indicator including the total costs is better suited to a manufacturing company such as AOE cannot succeed in the present instance. Indeed, as has been stated in paragraph 12 above, it is AOE and not its Irish branch that has ownership of the materials used, works in progress and finished products. In so far as the total costs take into account the costs of all those elements, the use of the total costs as the profit level indicator does not seem, contrary to the Commission’s assertions, the most suitable way of reflecting the value of the functions actually performed by AOE’s Irish branch, taking into account in particular that branch’s assets. 412 In those circumstances, the Commission did not succeed in demonstrating that its recommended profit level indicator based on the total costs would be more appropriate in the present instance for the purpose of determining the arm’s length profits for the Irish branch of AOE. (c) Conclusions regarding the choice of the operating costs as the profit level indicator 413 Having regard to the foregoing considerations, it must be concluded that the Commission did not succeed in demonstrating, in the contested decision, that the choice of the operating costs of the Irish branches of ASI and AOE as the profit level indicator when applying a one-sided profit allocation method was inappropriate. 414 In addition and in any event, the Commission also did not submit evidence demonstrating that such a choice, as such, necessarily had to lead to the conclusion that the contested tax rulings had reduced ASI and AOE’s tax liability in Ireland. 415 In that regard, the Court finds that neither the exchanges preceding the issuing of the contested tax rulings, nor Ireland and ASI and AOE when questioned on that point in the context of the present proceedings, were able to provide a sufficient explanation of the reason for the inconsistencies detected in those rulings concerning the operating costs, used as the basis for calculating the chargeable profit of the branches in the 1991 tax ruling and which were no longer included as the basis for calculating the chargeable profit of the branches in the 2007 tax ruling. 416 However, even where there are inconsistencies which show defects in the methodology used to calculate the chargeable profits in the contested tax rulings, it is necessary to recall the considerations set out in paragraph 348 above, from which it follows that the Commission cannot confine itself to invoking a methodological error but must prove that an advantage has actually been granted, inasmuch as such an error has actually led to a reduction in the tax burden of the companies in question as compared to the burden which they would have borne had the normal rules of taxation been applied. However, it must also be specified that the Commission did not argue in the contested decision that the exclusion of certain categories of operating costs used as a basis for calculating the profit allocated to the branches of ASI and AOE had given rise to an advantage for the purposes of Article 107(1) TFEU. 417 Accordingly, the complaints raised by Ireland and by ASI and AOE in relation to the Commission’s statements regarding the methodological error relating to the choice of the operating costs as the profit level indicator for the Irish branches of ASI and AOE in connection with its subsidiary line of reasoning must be upheld. 4. The levels of return accepted in the contested tax rulings 418 In recitals 346 to 359 of the contested decision, the Commission challenged the levels of return of ASI and AOE’s Irish branches accepted by the contested tax rulings, while noting that the Irish tax authorities had not been provided with any profit allocation reports or any other explanation by the Apple Group supporting the proposals made by that group that had led to the contested tax rulings. 419 First, concerning ASI, in recital 346 of the contested decision, the Commission noted that the 1991 tax ruling had accepted as the chargeable profit a 12.5% margin on the operating costs of its Irish branch, while the 2007 tax ruling had accepted a [confidential] margin. 420 Second, concerning AOE, in recital 347 of the contested decision, the Commission noted that the chargeable profit endorsed by the Irish tax authorities corresponded to [confidential] of the operating costs, a percentage which would have decreased to [confidential] if the chargeable profit had exceeded [confidential]. In the 2007 tax ruling, the chargeable profit corresponded to [confidential] of the branch’s operating costs, increased by a return of [confidential] of the turnover, in respect of the IP developed by AOE. In addition, it emphasised that AOE’s chargeable profit seemed to have been arrived at through negotiation and to have depended on employment considerations as was demonstrated by the taking into account of the need ‘not to prohibit the expansion of the Irish operations’ in the discussions preceding the issuing of the 1991 tax ruling. 421 It is apparent from recitals 348 and 349 of the contested decision that the explanations provided during the administrative procedure by Ireland and by Apple Inc. regarding the calculation of ASI and AOE’s chargeable profits did not convince the Commission. It considered that the returns accepted by the Irish tax authorities for the Irish branches of ASI and AOE had been based on significantly reduced profit margins, although there would not have been any economic rationale for a company to accept such low profits. 422 In particular, concerning the 2007 tax ruling, in recitals 350 to 359 of the contested decision, the Commission focused on the ex post reasoning set out in the ad hoc reports prepared by Ireland and the Apple Group’s respective tax advisors relating to the levels of return agreed for the Irish branches of ASI and AOE. According to the Commission, those reports had been based on a comparability study, the relevance of which was disputed on the ground that the products offered by the companies selected for comparability purposes were not comparable to the high-quality branded products offered by the Apple Group. More specifically, the Commission argued that the risks connected with warranties for high-end goods assumed by ASI were not comparable to those borne by the companies selected in the study for their products. In addition, it highlighted the fact that at least 3 companies out of the 52 selected were in a situation of compulsory liquidation. 423 Furthermore, in recitals 354 and 355 of the contested decision, the Commission, for the sake of completeness, nevertheless carried out its own assessment of the level of return which should have been allocated to ASI and AOE, using the same comparable companies reproduced in the ad hoc report submitted by Ireland but using as the profit level indicator the turnover (resulting from sales) for ASI and the total costs for AOE. Following that corrected analysis, the Commission came to the conclusion that the levels of return accepted in the contested tax rulings were excessively low. 424 Regarding ASI, in recital 355 of the contested decision, the Commission stated that, taking the sales of the companies chosen in the comparability study as the profit level indicator, in 2012, the average return was 3%, with an interquartile range of 1.3 to 4.5%. However, the Commission noted that the trading income allocated to the Irish branch of ASI for 2012 as chargeable profits under the 2007 tax ruling was around [confidential], that is, around [confidential] of ASI’s turnover in 2012. That return was almost 20 times lower than that obtained by the Commission in its corrected analysis. 425 Regarding AOE, in recital 357 of the contested decision, the Commission noted that its chargeable profit in 2012 had amounted to around [confidential] of the total costs of the Irish branch. That percentage fell within the interquartile range presented in the ad hoc reports submitted by Ireland and the Apple Group’s respective tax advisors and was close to the 25th percentile, which the tax advisors had considered to be the lower end of an arm’s length range. Thus, the Commission noted that, according to the ad hoc report submitted by Apple Inc., for the period from 2009 to 2011, the lower quartile mark-up on total costs would have been [confidential] with a median of [confidential] and, according to the ad hoc report submitted by Ireland, for the period from 2007 to 2011, the lower quartile mark-up on total costs would have been [confidential] (with a median of [confidential]). 426 However, in recitals 358 and 359 of the contested decision, the Commission specified that those reports could not support the ex post conclusion that the remuneration of the functions performed by the Irish branch of AOE was in line with the arm’s length principle. First of all, it called in question the comparability of the data in so far as no detailed analysis of the comparability of the business or cost structure of the companies selected had been provided. Next, it explained that the 25th percentile had been used as the lower end of the range, which corresponded to an overly broad approach, in particular having regard to the comparability concerns identified in the ad hoc reports in question. Lastly, the Commission noted that, in the ad hoc reports, the comparison had been carried out only in relation to manufacturing companies, whereas the Irish branch of AOE had also provided shared services to other companies from the Apple Group in the EMEIA region, such as financial services, information systems and technology, and services relating to human resources. 427 On the basis of those statements, in recital 360 of the contested decision the Commission concluded that the contested tax rulings had approved a remuneration which the Irish branches would not have accepted, from the perspective of their own profitability, if they had been separate and independent undertakings carrying on identical or similar activities under identical or similar conditions. 428 The parties disagree both as to the existence and as to the impact of the errors identified by the Commission as regards the levels of return accepted by the contested tax rulings and the ex post validation thereof proposed in the ad hoc reports prepared by Ireland and the Apple Group’s respective tax advisors. (a) The remuneration of the Irish branches of ASI and AOE endorsed by the 1991 tax ruling 429 In the first place, the Commission complains that the Irish tax authorities accepted, in the contested tax rulings, the levels of return for the Irish branches of ASI and AOE without such levels of return being substantiated by any reports. 430 First, it should be noted that Ireland and ASI and AOE argue that, at the time the contested tax rulings were issued, the submission of a profit allocation report was not required under the applicable Irish tax law, which has not been contested by the Commission. 431 Second, it should be noted that the Commission’s complaint relates to an error of methodology (or a lack thereof), in so far as it concerns defects in the method for calculating the chargeable profits endorsed by the contested tax rulings, resulting from a lack of profit allocation reports. 432 It is true that the explanations provided by the Apple Group to the Irish tax authorities as justification for the proposed levels of return, as reproduced in recital 64 of the contested decision, were brief. The Apple Group asserted that the proposed levels were above a mark-up of 15%, which would ordinarily have been achieved by a ‘cost center’, but below a mark-up of 100%, which could be common in the pharmaceutical industry, which was not comparable to the IT sector. In addition, it should be borne in mind that the Apple Group acknowledged before the Irish tax authorities that its proposal was not based on any scientific grounds, but that it considered that such a proposal resulted in a sufficiently high amount of chargeable profits. 433 In that regard, the Court notes that neither the exchanges preceding the issuing of the contested tax rulings nor Ireland and ASI and AOE when questioned on that point in the context of the present proceedings were able to provide a sufficient explanation of the exact reason for the indicators and figures used to calculate the chargeable profits of ASI and AOE. Thus, there is no concrete and contemporary piece of evidence explaining the reasons for the level of the percentages of the operating costs accepted in the contested tax rulings, let alone for the changes in those percentages over time. 434 However, it must be pointed out that, apart from raising the issue of the lack of profit allocation reports, the Commission did not conduct its analysis in such a way as to demonstrate that, as a result of that calculation, the tax actually paid by ASI and AOE on the basis of the contested tax rulings was less than that which should have been paid under the normal rules of taxation, had the contested tax rulings not been issued. 435 Thus, for the same reasons as those set out in paragraph 332 above, the mere finding of an error as regards the methodology leading to the calculation of the profits to be allocated to the branches is not sufficient to demonstrate that the contested tax rulings conferred an advantage on ASI and AOE. 436 In the second place, the Commission complained that the Irish tax authorities had accepted, without justification, a threshold for AOE’s chargeable profits, namely [confidential], beyond which the chargeable profits no longer corresponded to 65% of the Irish branch’s operating costs, but to [confidential] of those costs. According to the Commission, a rational economic operator would not accept lower returns and forgo a part of its profits, if its operating costs were increasing, which indicated an increase in the volume of its activities, even if those returns were sufficient to cover its costs and achieve a certain level of profit. 437 The Commission argued that that threshold constituted tax relief which had been granted on the basis of criteria unrelated to the tax system, such as employment considerations, and that, accordingly, it was deemed to confer a selective advantage. 438 In that regard, Apple Inc. claimed, in its observations following the Opening Decision, that that departure was justified by the fact that the incremental fixed investment necessary for expansion was greater at the start of operations than when those operations were ongoing. Furthermore, in the responses to the written questions from the Court, ASI and AOE confirmed that the threshold of [confidential] had never been reached and that, accordingly, the second, lower percentage had never been used for the purpose of calculating AOE’s chargeable profits. The Commission has not contested that information. 439 In the first place, it should be noted that, while it is true that it has been held that, if the competent authorities have a broad discretion to determine, inter alia, the conditions under which the financial assistance is provided on the basis of criteria unrelated to the tax system, such as maintaining employment, the exercise of that discretion may be regarded as giving rise to a selective measure (judgment of 18 July 2013, P, C‑6/12, EU:C:2013:525, paragraph 27), the fact remains that, in order to determine whether State measures may constitute State aid, regard must primarily be had to the effects of those measures on the undertakings favoured (see judgment of 13 September 2010, Greece and Others v Commission, T‑415/05, T‑416/05 and T‑423/05, EU:T:2010:386, paragraph 212 and the case-law cited). 440 In any event, the mere allusion, during the exchanges between the Irish tax authorities and the Apple Group preceding the 1991 tax ruling, to the fact that the Apple Group was one of the largest employers in the region where the Irish branches of ASI and AOE were established does not prove that ASI and AOE’s chargeable profits were determined on the basis of employment-related issues. Indeed, it is apparent from the report of the exchange in question, reproduced in recital 64 of the contested decision, that the allusion to employees of the Apple Group in the region in question was made to provide information regarding the background to and expansion of the group’s operations in the region and not to provide consideration for the proposal regarding the allocation of the profits to the Irish branches in question. 441 Thus, in the absence of other evidence, the Commission cannot argue that the tax ruling in question was issued as consideration for the potential creation of jobs in the region. 442 In the second place, it should be noted that the threshold in question was never reached and that, accordingly, the profits of AOE’s Irish branch were never allocated on the basis of the lower percentage provided for by the 1991 tax ruling. 443 Indeed, AOE’s turnover significantly decreased between the period preceding the 1991 tax ruling, namely USD 751 million in 1989, as stated in recital 64 of the contested decision, and 2006, the last year in which the 1991 tax ruling was applied, namely USD 359 million, as stated in recital 97 of the contested decision. 444 Therefore, even assuming that the Commission’s assertions regarding a lack of justification from an economic perspective for the threshold laid down by that ruling are proved, it cannot argue that an advantage was granted as a result of the inclusion of a threshold in the 1991 tax ruling, when such a mechanism was not actually implemented. 445 In the third place, even if the Commission’s argument were to be understood as meaning that the levels of return accepted by the Irish tax authorities were too low for the functions performed by the branches, in view of the assets and risks relating to those functions, that argument cannot succeed without other evidence. 446 The Commission’s subsidiary line of reasoning is based on the premiss that the Irish tax authorities could have correctly allocated the Apple Group’s IP licences to the head offices, which, according to the OECD Transfer Pricing Guidelines, implies the performance of complex or unique functions. However, as can be seen from the conclusions expressed in paragraph 348 above, the Commission did not succeed in demonstrating that the Irish branches of ASI and AOE had performed the most complex functions. 447 In addition, particularly as regards ASI, the Commission bases its reasoning on the consideration that the Irish branch assumed very significant risks in relation to the Apple Group’s activities. However, as can be seen from the conclusions expressed in paragraph 407 above, the Commission did not succeed in demonstrating that those risks had actually been borne by the Irish branch of ASI. 448 Accordingly, in the absence of other evidence, the Commission did not succeed in demonstrating that the levels of return established under the 1991 tax ruling had been too low to remunerate the functions actually performed by the Irish branches of ASI and AOE, in view of their assets and their risks. (b) The remuneration of the Irish branches of ASI and AOE endorsed by the 2007 tax ruling 449 Besides the complaint relating to the lack of a profit allocation report in support of the 2007 tax ruling, which has been set aside for the same reasons as those set out in paragraphs 430 to 435 above, the Commission challenged the remuneration of the Irish branches of ASI and AOE, in the form of the profits allocated to those branches, under the 2007 tax ruling, by contesting the ad hoc reports submitted by Ireland and Apple Inc. in order to provide ex post evidence of the fact that those profits fell within arm’s length ranges. In particular, the Commission called in question the reliability of the ad hoc reports submitted by Ireland and Apple Inc. because the companies chosen for the comparability study on which those reports were based were not comparable to ASI and AOE. (1) The choice of the companies used in the comparability studies 450 In the contested decision, the Commission noted, inter alia, two errors concerning the comparability of the companies chosen in the comparability study with the Irish branch of ASI. First, in recital 350 of the contested decision, the Commission stated that it was not possible to identify the companies chosen in the ad hoc report submitted by Apple Inc. Second, in recital 351 of the contested decision, the Commission emphasised that the selection of the comparable companies in the comparability study had not taken account of the fact that, unlike those companies, the Apple Group sold high-quality branded products and positioned its products as such on the market. In that regard, the Commission noted that, although ASI was responsible for warranties on the products sold which, in the case of high-quality branded products, presented a very high risk, the comparable companies used were not exposed to such a risk. 451 Concerning the comparability with the Irish branch of AOE, the Commission noted (in recital 359 of the contested decision) that the ad hoc report submitted by Ireland had taken into account only manufacturing companies, whereas AOE also provided shared services to other companies from the Apple Group in the EMEIA region, such as financial services, information systems and technology, and services relating to human resources. 452 It should be noted at the outset that, even assuming that the errors identified by the Commission regarding the ad hoc reports submitted by Ireland and Apple Inc. ex post facto are proved and that they invalidate the conclusions in those reports, the Commission could not infer therefrom that the contested tax rulings had led to a reduction in ASI and AOE’s tax liability in Ireland. 453 Those reports were submitted by Ireland and Apple Inc. in order to demonstrate ex post facto that the profits allocated to the Irish branches of ASI and AOE under the contested tax rulings fell within arm’s length ranges. The submission of those ad hoc reports by Ireland and Apple Inc. cannot alter the burden of proof concerning the existence of an advantage in the present instance, which rests with the Commission, as recalled in paragraph 100 above. 454 In any case, it is necessary to examine whether the defects identified by the Commission in the ad hoc reports submitted by Ireland and Apple Inc. are proved and may invalidate the conclusions in those reports. 455 First, it should be noted, as Ireland and ASI and AOE correctly submit, that analysing transfer pricing is not an exact science and it is not possible to check for exact results as to what is considered to be an arm’s length level. In that regard, it is necessary to recall paragraph 1.13 of the OECD Transfer Pricing Guidelines, which states that the objective of determining transfer pricing is ‘to find a reasonable estimate of an arm’s length outcome based on reliable information’ and that ‘transfer pricing is not an exact science but does require the exercise of judgment on the part of both the tax administration and taxpayer’. 456 Secondly, concerning the undertakings chosen for the comparability study serving as the basis for the ad hoc report submitted by Apple Inc., ASI and AOE submit that, during the administrative procedure, Apple Inc. asked the Commission several times for its observations regarding that ad hoc report, without any specific question regarding the data from the comparability study being raised. The Commission does not dispute those arguments. In addition, in the present action ASI and AOE have submitted the data used for that ad hoc report, stating that they were taken from the same database as was used in the ad hoc report submitted by Ireland. The Commission has not raised any further specific objections with regard to the ad hoc report submitted by Apple Inc. 457 Thirdly, in so far as the Commission challenged the use, with regard to the two ad hoc reports submitted by Ireland and Apple Inc., of a comparability study, which was based on a search in a database containing comparable data, the following points should be noted. 458 First of all, in so far as the Commission’s complaints must be understood as challenging the use of a database containing comparable data as such, they cannot succeed. Indeed, without the support of a database, it would not be possible to carry out, in connection with the second step in the one-sided profit allocation method, a comparability study that enables the profits to be regarded as arm’s length profits to be estimated, which presupposes that it is possible to make such an estimate using comparable companies. 459 However, the Commission did not provide evidence to support excluding, as such, the use of databases drawn up by specialised independent companies, such as the database that was used in the ad hoc reports submitted by Ireland and Apple Inc. As is correctly argued by Ireland and ASI and AOE, those databases are created using the Statistical Classification of Economic Activities in the European Community (NACE) and, in the absence of evidence demonstrating defects which invalidate those databases, they constitute an empirical basis for carrying out the comparability studies. 460 Next, regarding the Commission’s arguments contesting the comparability of the companies chosen for the comparability study, concerning the Irish branch of ASI, it should be noted that the Commission merely relied on the same arguments as it had raised regarding the choice of the operating costs as the profit level indicator, namely that ASI was responsible for warranties on sold products and that it assumed a significant risk in respect of high-end products handled by third-party subcontractors, whereas the companies chosen did not assume those kinds of significant risks and therefore were not comparable. However, for the same reasons as those expressed in paragraphs 391 to 402 above, those arguments must be rejected. 461 In addition, as has been stated by Ireland and ASI and AOE, it should be noted that, in so far as, as concluded in paragraph 413 above, operating costs could not be ruled out as a profit level indicator in the present instance, the high-quality nature of the brand would have no significant impact on comparability in the present instance. Indeed, as ASI and AOE correctly submit, the fact that a company distributes high-quality branded products cannot necessarily have an impact on its operating costs as compared to the operating costs which it would have to bear if it distributed lower-quality products. This has been demonstrated in the present instance by the fact, acknowledged by the Commission itself in recital 337 of the contested decision, that the operating costs of the Irish branch of ASI had remained relatively stable in relation to the exponential increase in ASI’s sales. 462 Regarding the reservations as to the comparability of the manufacturing companies chosen in connection with the comparability study with regard to the Irish branch of AOE, because of the ancillary functions which that branch would have performed in addition to manufacturing activities, it should be noted that those ancillary functions are not representative of all the functions performed by that branch, as is correctly argued by Ireland and ASI and AOE. In that regard, those parties rely in particular on the analysis of the activities of AOE’s Irish branch in the ad hoc reports submitted by them, which, on that specific point, was not contested by the Commission. 463 Lastly, regarding the fact, referred to by the Commission, that 3 of the 52 companies chosen for the comparability study have become companies in liquidation, such reservations cannot affect the reliability of that study as a whole. In addition, those companies were put into compulsory liquidation after the tax years in respect of which the study was conducted. Furthermore, contrary to the Commission’s assertions, it does not appear, in view of the considerations set out in paragraph 455 above, that 3 companies, out of the 52 targeted in the study in question, represents a significant proportion liable to distort the outcome of the comparability study. 464 In those circumstances, it must be concluded that the Commission did not succeed in calling in question the reliability of the comparability studies on which the ad hoc reports submitted by Ireland and Apple Inc. are based and, accordingly, in establishing that those reports are not reliable. (2) The corrected comparability analysis conducted by the Commission 465 It should be noted that, in recitals 353 to 356 of the contested decision, the Commission conducted its own comparability analysis, which may be designated as ‘the corrected comparability analysis’. 466 In its corrected comparability analysis, the Commission sought to assess whether the remuneration for the Irish branches of ASI and AOE as endorsed by the contested tax rulings fell within arm’s length ranges. 467 In the first place, concerning the Irish branch of ASI, the Commission used the data from the companies selected in the ad hoc report submitted by Ireland, taking the Irish branch of ASI as the tested party and the sales as the profit level indicator. Those data were reproduced in Figure 13, set out in recital 354 of the contested decision. The Commission thus compared the profits allocated to the Irish branch of ASI in relation to ASI’s sales with the median return on sales of the companies selected in the ad hoc report submitted by Ireland, for the years 2007 to 2011. 468 It should be noted at the outset that it is true that the Commission’s approach, consisting in comparing the results of its own analysis, on the one hand, and ASI’s chargeable profits under the contested tax rulings, on the other, could have enabled it, in principle, to demonstrate the existence of a selective advantage. 469 However, the conclusions of the corrected comparability analysis conducted by the Commission cannot invalidate the conclusions of the ad hoc reports submitted by Ireland and Apple Inc., according to which the profits of the Irish branches of ASI and AOE, determined pursuant to the contested tax rulings, fell within arm’s length ranges. 470 First of all, it must be pointed out that the Commission’s corrected comparability analysis relies on sales as a profit level indicator for the purpose of applying the TNMM. However, as is apparent from the considerations expressed in paragraphs 402 and 412 above, it has not been demonstrated that the use of the operating costs as the profit level indicator was inappropriate in the present instance. In addition, it has not been demonstrated that the use of sales would have been more appropriate. 471 Next, it should be borne in mind that the analysis conducted by the Commission in connection with its subsidiary line of reasoning is based on the premiss that, in essence, the functions performed by the Irish branch of ASI were of a complex nature and were decisive for the success of the Apple brand and, accordingly, of ASI’s trading activity. In addition, according to the Commission, that branch had assumed significant risks in relation to ASI’s activities. However, as has been concluded in paragraphs 348 and 407 above, the Commission did not succeed in demonstrating that the Irish branch of ASI had performed complex functions and assumed those significant risks. 472 Lastly, in recitals 353 to 355 of the contested decision, the Commission sought to assess the median return on sales of comparable undertakings against the median return on ASI’s sales, as a function of the profit allocated to its Irish branch under the 2007 tax ruling. However, that approach is not in line with either the Authorised OECD Approach or section 25 of the TCA 97, in so far as the return on ASI’s sales cannot reflect, in the case of its Irish branch, the value of the functions actually performed by that branch, for the following reasons. 473 First, as stated in paragraphs 384 and 385 above, the distribution functions guaranteed by the Irish branch of ASI consisted in the procurement, sale and distribution of Apple-branded products under framework agreements negotiated outside that branch. Accordingly, the added value contributed by the Irish branch of ASI cannot be grasped by examining the return on ASI’s sales. 474 Second, the functions actually performed by the Irish branch of ASI did not have a decisive impact on either the Apple Group’s IP or the Apple brand, as has been stated in paragraph 341 above. Those two factors are intrinsically linked and may be brought together under the Apple brand designating high-quality products, which was regarded by the Commission itself in recital 351 of the contested decision as decisively affecting the value of ASI’s sales. For this reason, the return on ASI’s sales does not provide a realistic image of the actual contribution of its Irish branch to those sales. 475 In those circumstances, the conclusions of the corrected comparability analysis conducted by the Commission concerning the remuneration of ASI’s Irish branch, an analysis which used sales as a profit level indicator, cannot invalidate the conclusions of the ad hoc reports submitted by Ireland and Apple Inc., which used the operating costs as the profit level indicator. 476 In the second place, concerning AOE’s remuneration, as the Commission itself noted in recital 357 of the contested decision, the results of the comparability analysis used by the Commission, as summarised in paragraph 425 above, show that the profits allocated to the Irish branch of AOE in Ireland under the contested tax rulings fell within ranges which could be regarded as being arm’s length ranges. 477 Accordingly, the results of the analysis conducted by the Commission, in essence, confirm the conclusions derived from the ad hoc reports submitted by Ireland and by Apple Inc., according to which the profits allocated to the Irish branch of AOE fell within arm’s length ranges. In that regard, it should be noted, in the light of the considerations expressed in paragraph 455 above regarding the transfer pricing analyses, that the fact that those results fall more towards the lower end of an arm’s length range cannot invalidate those results. 478 Having regard to the foregoing considerations, the complaints raised by Ireland and by ASI and AOE in respect of the Commission’s statements regarding the methodological error relating to the levels of return accepted in the contested tax rulings must be upheld. 5. Conclusions regarding the assessments made by the Commission in connection with its subsidiary line of reasoning 479 The findings made above concerning the defects in the methods for calculating the chargeable profits of ASI and AOE demonstrate the incomplete and occasionally inconsistent nature of the contested tax rulings. However, in themselves, those circumstances are not sufficient to prove the existence of an advantage for the purposes of Article 107(1) TFEU. 480 Indeed, the Commission did not succeed in demonstrating that the methodological errors to which it had referred with regard to the profit allocation methods endorsed by the contested tax rulings, consisting in the choice of the Irish branches as tested parties (paragraph 351 above), the choice of the operating costs as the profit level indicator (paragraph 417 above), and the levels of return accepted by the contested tax rulings (paragraph 478 above) had led to a reduction in ASI and AOE’s chargeable profits in Ireland. Accordingly, it did not succeed in demonstrating that those rulings had granted those companies an advantage. 481 In those circumstances, the pleas in law relied on by Ireland and by ASI and AOE, alleging that, in connection with its subsidiary line of reasoning, the Commission has not succeeded in demonstrating the existence of an advantage in the present instance for the purposes of Article 107(1) TFEU must be upheld. F. Pleas in law contesting the assessments made by the Commission in connection with its alternative line of reasoning (fifth plea in law in Case T‑778/16 and ninth plea in law in Case T‑892/16) 482 The Commission set out its alternative line of reasoning in recitals 369 to 403 of the contested decision, which is divided into two alternative parts. 483 In the first place, in recitals 369 to 378 of the contested decision, the Commission contended that the arm’s length principle was inherent in the application of section 25 of the TCA 97 and that, in so far as the contested tax rulings derogated from that principle, they conferred a selective advantage on ASI and AOE in the form of a reduction of their taxable base. 484 In the second place, in recitals 379 to 403 of the contested decision, the Commission contended that, even assuming that the application of section 25 of the TCA 97 was not governed by the arm’s length principle, the contested tax rulings still had to be regarded as granting ASI and AOE a selective advantage in so far as those rulings were the result of the discretion exercised by the Irish tax authorities. 485 Ireland and ASI and AOE contest, in essence, the assessments made by the Commission in both parts of the alternative line of reasoning. 1. First part of the Commission’s alternative line of reasoning 486 In the first part of its alternative line of reasoning, the Commission considered that the contested tax rulings derogated from section 25 of the TCA 97, on the ground that the arm’s length principle was inherent in that section (recital 377 of the contested decision). The Commission then referred to its subsidiary line of reasoning, in which it considered that the contested tax rulings did not allow a reliable approximation of a market-based outcome in line with the arm’s length principle to be calculated and, therefore, concluded that those rulings had granted ASI and AOE a selective advantage (recital 378 of the contested decision). 487 In that regard, it is sufficient to note that, in so far as the first part of the Commission’s alternative line of reasoning is based on statements that it made in its subsidiary line of reasoning and that, as has been found in paragraph 481 above, the Commission cannot rely on that reasoning in order to conclude that there was an advantage in the present instance, it must be held that the Commission is equally unable to rely on the first part of its alternative line of reasoning in order to conclude that there was a selective advantage in the present instance. 488 In those circumstances, it must be concluded that, in the first part of the alternative line of reasoning, the Commission did not succeed in demonstrating that the contested tax rulings had granted ASI and AOE a selective advantage. 2. Second part of the Commission’s alternative line of reasoning 489 In the second part of its alternative line of reasoning, the Commission contends that, even assuming that the application of section 25 of the TCA 97 was not governed by the arm’s length principle, the contested tax rulings still conferred a selective advantage on ASI and AOE in so far as those rulings were issued by the Irish tax authorities on a discretionary basis. 490 First, the Commission maintained that it had shown in its primary and subsidiary lines of reasoning that the contested tax rulings had endorsed profit allocation methods that resulted in a reduction in the chargeable profits of ASI and AOE in Ireland and that conferred an economic advantage for the purposes of Article 107(1) TFEU. 491 Second the Commission stated that, in so far as section 25 of the TCA 97 does not lay down any objective criteria for the allocation of profits among the various parts of a single non-resident company, the Irish tax authorities’ discretion in applying that provision is not based on objective criteria related to the tax system, which means that it can be presumed that the contested tax rulings are selective. In addition, the Commission examined 11 tax rulings that had been sent to it by Ireland and observed that those rulings contained a number of discrepancies, on the basis of which it considered that the Irish tax authorities’ practice concerning tax rulings was discretionary as no consistent criterion was used to determine the profits to be allocated to the Irish branches of non-resident companies for the purpose of applying section 25 of the TCA 97. 492 The Commission concluded from the above that the contested tax rulings had been issued on the basis of the Irish tax authorities’ discretion in the absence of objective criteria related to the tax system and that, therefore, those rulings had to be considered to confer a selective advantage on ASI and AOE for the purposes of Article 107(1) TFEU. 493 With regard to the conclusions reached by the Commission, first, it should be noted that, in so far as the Commission did not succeed in showing that there was an advantage through its primary and subsidiary lines of reasoning, it cannot, solely through its alternative line of reasoning as described above, show that there is a selective advantage in the present instance. Even assuming that it were established that the tax authorities had discretion, the existence of such discretion does not necessarily mean that it was used to reduce the tax liability of the recipient of the tax ruling as compared with the liability to which that recipient would normally have been subject. 494 Therefore, the Commission’s alternative line of reasoning is insufficient to establish the existence of State aid for the purposes of Article 107(1) TFEU. 495 Second and in any case, the Commission did not succeed in showing that the Irish tax authorities had exercised a broad discretion in the present instance. 496 It is necessary to recall the case-law stating that, in order to establish the selective nature of a tax advantage, it is not necessary for the competent national authorities to have the discretionary power to grant the benefit of that measure. However, the existence of such discretion may be such as to enable those authorities to favour certain undertakings or the production of certain goods to the detriment of others, in particular where the competent authorities have the discretionary power to determine the beneficiaries and the conditions of the measure granted on the basis of criteria unrelated to the tax system (judgment of 25 July 2018, Commission v Spain and Others, C‑128/16 P, EU:C:2018:591, paragraph 55). 497 It is clear that, in recital 381 of the contested decision, the Commission limited itself to stating that Ireland had not identified any objective standard for allocating the profits of a non-resident company for the purpose of applying section 25 of the TCA 97. In that same recital, it concluded directly from the above that ‘this would mean that [the Irish tax authorities’] discretion in applying that provision [was] not based on objective criteria related to the tax system, which [gave] rise to a presumption of a selective advantage’. 498 As has been pointed out in paragraphs 238 and 239 above, in order to apply section 25 of the TCA 97, it is necessary to carry out an objective analysis of the facts that includes, first, identifying the activities performed by the branch, the assets it uses for its functions and the related risks that it assumes and, second, determining the value of that type of activity on the market. Such an analysis corresponds, in essence, to the analysis proposed by the Authorised OECD Approach. 499 Consequently, the Commission cannot argue that the Irish tax authorities’ application of section 25 of the TCA 97 did not involve the use of any consistent criterion in order to determine the profits to be allocated to the Irish branches of non-resident companies. 500 It is true that, in the present instance, the Irish tax authorities’ application of section 25 of the TCA 97 in the contested tax rulings was insufficiently documented. As has been stated in paragraphs 347 and 433 above, the information and evidence in support of that application were very concise. That lack of documented analysis is indeed a regrettable methodological defect in the calculation of ASI and AOE’s chargeable profits, endorsed in the contested tax rulings. However, such a defect is, in itself, insufficient to show that the contested tax rulings were the result of a broad discretion exercised by the Irish tax authorities. 501 Third, the 11 tax rulings concerning the allocation of profits to the Irish branches of non-resident companies examined by the Commission in recitals 385 to 395 of the contested decision are not of such a kind as to show that the Irish tax authorities have a broad discretion which leads to the recipient companies being given favourable treatment as compared with other companies in a comparable situation. 502 As is apparent from recitals 385 to 395 of the contested decision, each of those 11 tax rulings relates to companies with entirely different activities. As the Commission itself noted in recital 88 of the contested decision, the allocation of profits among several associated companies depends on the functions performed, the risks assumed and the assets used by each company. It should therefore be concluded that the 11 tax rulings approve different profit allocation methods simply because the situations of the taxpayers are different. Therefore, the fact that those different situations were taken into account when the rulings in question were issued does not in any way show that the Irish tax authorities had any discretion. 503 It follows from the foregoing considerations that the Commission cannot rely on the second part of its alternative line of reasoning in order to conclude that there was a selective advantage in the present instance. 504 Consequently, the pleas in law relied on by Ireland and ASI and AOE alleging that, in its alternative line of reasoning, the Commission did not succeed in showing that there was a selective advantage in the present instance for the purposes of Article 107(1) TFEU must be upheld, without there being any need to examine the complaints alleging breaches of essential procedural requirements and of the right to be heard raised by ASI and AOE regarding the Commission’s assessments in its alternative line of reasoning. G. Conclusions regarding the Commission’s assessment concerning the existence of a selective advantage 505 In view of the conclusions set out in paragraphs 312, 481 and 504 above, in which the Court finds that the pleas in law relied on by Ireland and ASI and AOE against the assessments made by the Commission in connection with its primary, subsidiary and alternative lines of reasoning must be upheld, it must be concluded that the Commission did not succeed in showing, in the present instance, that, by issuing the contested tax rulings, the Irish tax authorities had granted ASI and AOE a selective advantage for the purposes of Article 107(1) TFEU. 506 In that regard, it should be borne in mind that, although, according to the settled case-law cited in paragraph 100 above, the Commission may classify a tax measure as State aid, it may do so only in so far as the conditions for such a classification are satisfied. 507 In the present instance, as the Commission did not succeed in showing to the requisite legal standard that there was a selective advantage for the purposes of Article 107(1) TFEU, the contested decision must be annulled in its entirety without it being necessary to examine the other pleas in law raised by Ireland and ASI and AOE. IV. Costs 508 Under Article 134(1) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the Commission has been unsuccessful, it must be ordered to bear its own costs and to pay those of Ireland, in the context of Case T‑778/16, and those of ASI and AOE, in accordance with the form of order sought by those companies. 509 In accordance with Article 138(1) of the Rules of Procedure, Ireland, in the context of Case T‑892/16, the Grand Duchy of Luxembourg, the Republic of Poland and the EFTA Surveillance Authority are to bear their own costs. On those grounds, THE GENERAL COURT (Seventh Chamber, Extended Composition) hereby: 1. Joins Cases T‑778/16 and T‑892/16 for the purposes of the present judgment; 2. Annuls 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; 3. Orders the European Commission to bear its own costs and to pay those of Ireland, in the context of Case T‑778/16, and those of Apple Sales International and Apple Operations Europe; 4. Orders Ireland, in the context of Case T‑892/16, the Grand Duchy of Luxembourg, the Republic of Poland and the EFTA Surveillance Authority to bear their own costs. Van der Woude Tomljenović Marcoulli Passer Kornezov Delivered in open court in Luxembourg on 15 July 2020. E. Coulon M. van der Woude Registrar President Table of contents I. Background to the dispute A. History of the Apple Group 1. The Apple Group 2. ASI and AOE (a) Company structure (b) The cost-sharing agreement (c) The marketing services agreement 3. The Irish branches B. The contested tax rulings 1. The 1991 tax ruling (a) The tax base of ACL, AOE’s predecessor (b) The tax base of ACAL, ASI’s predecessor 2. The 2007 tax ruling C. The administrative procedure before the Commission D. The contested decision 1. The existence of a selective advantage (a) The reference framework (b) The arm’s length principle (c) Selective advantage as a result of the profits derived from the IP licences held by ASI and AOE not being allocated to the Irish branches (primary line of reasoning) (d) Selective advantage resulting from the inappropriate choice of methods for allocating profits to ASI and AOE’s Irish branches (subsidiary line of reasoning) (e) Selective advantage resulting from the derogation from the reference framework, even assuming that that framework consists solely of section 25 of the TCA 97, by the contested tax rulings, which are not consistent with the arm’s length principle (alternative line of reasoning) (f) Conclusion regarding the selective advantage 2. Incompatibility, unlawfulness and recovery of the aid 3. Operative part II. Procedure and forms of order sought A. Case T778/16 1. The composition of the formation of the Court and priority treatment 2. The interventions 3. The applications for confidential treatment 4. Forms of order sought B. Case T892/16 1. The composition of the formation of the Court, priority treatment, and joinder 2. The interventions 3. The applications for confidential treatment 4. Forms of order sought C. Joinder of the cases and the oral part of the procedure III. Law A. Joinder of Cases T778/16 and T892/16 for the purposes of the decision closing the proceedings B. Pleas in law relied on and framework for examining the present actions C. Pleas in law alleging that the Commission exceeded its competences and encroached on the competences of the Member States in breach of, in particular, the principle of fiscal autonomy (8th plea in law in Case T778/16 and 14th plea in law in Case T892/16) D. Pleas in law alleging errors made in connection with the Commission’s primary line of reasoning 1. Joint examination of the conditions of advantage and selectivity (part of the second plea in law in Case T778/16) 2. Identification of the reference framework and assessments concerning normal taxation under Irish law (part of the first and second pleas in law in Case T778/16 and first, second and fifth pleas in law in Case T892/16) (a) Reference framework (b) The Commission’s assessments concerning the normal taxation of profits under Irish tax law (1) Application of section 25 of the TCA 97 (part of the second plea in law in Case T778/16 and of the first plea in law in Case T892/16) (2) The arm’s length principle (part of the first and third pleas in law in Case T778/16 and of the first and second pleas in law in Case T892/16) (i) Whether the Commission was entitled to rely on the arm’s length principle in order to determine whether there was a selective advantage (ii) Whether the Commission correctly applied the arm’s length principle in its primary line of reasoning (3) The Authorised OECD Approach (part of the second and fourth pleas in law in Case T778/16 and fifth plea in law in Case T892/16) (i) Whether the Commission was entitled to rely on the Authorised OECD Approach (ii) Whether the Commission correctly applied the Authorised OECD Approach in its primary line of reasoning (4) Conclusions regarding the identification of the reference framework and the assessments of normal taxation under Irish law 3. The Commission’s assessments concerning the activities within the Apple Group (first plea in law in Case T778/16 and third and fourth pleas in law in Case T892/16) (a) Activities of ASI’s Irish branch (b) Activities of AOE’s Irish branch (c) Activities other than those of ASI and AOE’s branches (1) Strategic decision-making within the Apple Group (2) Decision-making by ASI and AOE (d) Conclusions concerning the activities within the Apple Group 4. Conclusion regarding the Commission’s assessment that there was a selective advantage on the basis of its primary line of reasoning E. Pleas in law contesting the assessments made by the Commission in connection with its subsidiary line of reasoning (fourth plea in law in Case T778/16 and eighth plea in law in Case T892/16) 1. The assessment made regarding the profit allocation methods endorsed by the contested tax rulings in the light of the TNMM 2. The choice of ASI and AOE’s Irish branches as the ‘tested party’ when applying the profit allocation methods 3. The choice of the operating costs as the profit level indicator (a) The choice of the operating costs as the profit level indicator for the Irish branch of ASI (1) The appropriate profit level indicator (2) The risk connected with turnover (3) The risk connected with product warranties (4) The risks connected with the activities of third-party contractors (b) The choice of the operating costs as the profit level indicator for the Irish branch of AOE (c) Conclusions regarding the choice of the operating costs as the profit level indicator 4. The levels of return accepted in the contested tax rulings (a) The remuneration of the Irish branches of ASI and AOE endorsed by the 1991 tax ruling (b) The remuneration of the Irish branches of ASI and AOE endorsed by the 2007 tax ruling (1) The choice of the companies used in the comparability studies (2) The corrected comparability analysis conducted by the Commission 5. Conclusions regarding the assessments made by the Commission in connection with its subsidiary line of reasoning F. Pleas in law contesting the assessments made by the Commission in connection with its alternative line of reasoning (fifth plea in law in Case T778/16 and ninth plea in law in Case T892/16) 1. First part of the Commission’s alternative line of reasoning 2. Second part of the Commission’s alternative line of reasoning G. Conclusions regarding the Commission’s assessment concerning the existence of a selective advantage IV. Costs * Language of the case: English. 1 Confidential information omitted.