JUDGMENT OF THE GENERAL COURT (Seventh Chamber, Extended Composition)

15 July 2020 ( *1 )

(State aid — Aid implemented by Ireland — Decision declaring the aid incompatible with the internal market and unlawful and ordering recovery of the aid — Advance tax decisions (tax rulings) — Selective tax advantages — Arm’s length principle)

In Cases T‑778/16 and T‑892/16,

Ireland, represented by K. Duggan, M. Browne, J. Quaney, and A. Joyce, acting as Agents, and by P. Gallagher, M. Collins, Senior Counsel, P. Baker QC, S. Kingston, C. Donnelly, A. Goodman and B. Doherty, Barristers,

applicant in Case T‑778/16,

supported by

Grand Duchy of Luxembourg, represented by T. Uri, acting as Agent, and by D. Waelbroeck and S. Naudin, lawyers,

intervener in Case T‑778/16,

Apple Sales International, established in Cork (Ireland),

Apple Operations Europe, established in Cork,

represented by A. von Bonin and E. van der Stok, lawyers, D. Beard QC, and A. Bates, L. Osepciu and J. Bourke, Barristers,

applicants in Case T‑892/16,

supported by

Ireland, represented by K. Duggan, J. Quaney, M. Browne, and A Joyce, and by P. Gallagher, M. Collins, P. Baker, S. Kingston, C. Donnelly, and B. Doherty,

intervener in Case T‑892/16,

v

European Commission, represented by P.-J. Loewenthal and R. Lyal, acting as Agents,

defendant,

supported by

Republic of Poland, represented by B. Majczyna, M. Rzotkiewicz and A. Kramarczyk-Szaładzińska, acting as Agents,

intervener in Case T‑778/16,

and by

EFTA Surveillance Authority, represented by C. Zatschler, M. Sánchez Rydelski and C. Simpson, acting as Agents,

intervener in Case T‑892/16,

APPLICATIONS under Article 263 TFEU for annulment of 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 (OJ 2017 L 187, p. 1),

THE GENERAL COURT (Seventh Chamber, Extended Composition),

composed of M. van der Woude, President, V. Tomljenović (Rapporteur), A. Marcoulli, J. Passer and A. Kornezov, Judges,

Registrar: S. Spyropoulos, Administrator,

having regard to the written phase of the procedure and further to the hearing of 17 and 18 September 2019,

gives the following

Judgment

I. Background to the dispute

A. History of the Apple Group

1. The Apple Group

1 The Apple Group, founded in 1976 and based in Cupertino, California (United States), is composed of Apple Inc. and all companies controlled by Apple Inc. (collectively, ‘the Apple Group’). The Apple Group designs, manufactures and markets, inter alia, mobile communication and media devices, personal computers and portable digital music players, and sells software, other services, networking solutions and third-party digital content and applications. The Apple Group markets its products and services to consumers, businesses and governments worldwide, through its retail stores, online stores and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and resellers. The Apple Group’s global business is structured around key functional areas centrally managed and directed from the United States by executives based in Cupertino.

2 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 (OJ 2017 L 187, p. 1) (‘the contested decision’), concerns two advance tax decisions adopted by the Irish tax authorities in relation to two companies forming part of the Apple Group.

2. ASI and AOE

(a) Company structure

3 Within the Apple Group, Apple Operations International is a fully owned subsidiary of Apple Inc. Apple Operations International fully owns the subsidiary Apple Operations Europe (AOE), which in turn fully owns the subsidiary Apple Sales International (ASI). ASI and AOE are both companies incorporated in Ireland, but are not tax resident in Ireland.

4 As stated in recitals 113 to 115 of the contested decision, a significant number of members of the boards of directors of AOE and ASI were directors employed by Apple Inc. and based in Cupertino. Excerpts from resolutions and minutes from annual general meetings and board meetings of ASI and AOE are reproduced in recital 115 (Tables 4 and 5) of that decision. The resolutions of the boards of directors concerned, inter alia, on a regular basis, the payment of dividends, the approval of directors’ reports, and the appointment and resignation of directors. Less frequently, those resolutions concerned the incorporation of subsidiaries and powers of attorney authorising certain directors to carry out various activities such as managing banking, relationships with governments and other public offices, audits, insurance, renting, purchase and sale of assets, taking delivery of goods, and commercial contracts.

(b) The cost-sharing agreement

5 Apple Inc., on the one hand, and ASI and AOE, on the other, were bound by a cost-sharing agreement (‘the cost-sharing agreement’). The shared costs concerned, inter alia, the research and development (R&D) of technology incorporated in the Apple Group’s products. The initial cost-sharing agreement was signed in December 1980. The parties to that agreement were Apple Inc. (then Apple Computer Inc.) and AOE (then Apple Computer Ltd (ACL)). In 1999, ASI (then Apple Computer International) became a party to that agreement. During the period relevant to the investigation referred to in the contested decision, various amendments were made to the cost-sharing agreement, in order in particular to take into account changes in the applicable regulatory framework.

6 Under that agreement, the parties agreed to share the costs and the risks associated with the R&D concerning intangibles following development activities connected with the Apple Group’s products and services. The parties also agreed that Apple Inc. remained the official legal owner of the cost-shared intangibles, including the Apple Group’s intellectual property (‘IP’) rights. In addition, Apple Inc. granted ASI and AOE royalty-free licences enabling those companies, inter alia, to manufacture and sell the products concerned in the territory that had been assigned to them, that is to say, the world apart from North and South America. Furthermore, the parties to the agreement were required to bear the risks resulting from that agreement, the main risk being the obligation to pay the development costs relating to the Apple Group’s IP rights.

(c) The marketing services agreement

7 In 2008, ASI concluded a marketing services agreement with Apple Inc., in connection with which Apple Inc. undertook to provide marketing services to ASI, including the creation, development and production of marketing strategies, programmes and advertising campaigns. ASI undertook to remunerate Apple Inc. for those services by payment of a fee corresponding to a percentage of the ‘reasonable costs incurred’ by Apple Inc. in relation to those services, plus a mark-up.

3. The Irish branches

8 ASI and AOE set up Irish branches. AOE also had a branch in Singapore, which ceased its activities in 2009.

9 ASI’s Irish branch is responsible for, inter alia, carrying out procurement, sales and distribution activities associated with the sale of Apple-branded products to related parties and third-party customers in the regions covering Europe, the Middle East, India and Africa (EMEIA) and the Asia-Pacific region (APAC). Key functions within that branch include the procurement of Apple-branded finished products from third-party and related-party manufacturers, distribution activities associated with the sale of products to related parties in the EMEIA and APAC regions and with the sale of products to third-party customers in the EMEIA region, online sales, logistics operations, and operating an after-sales service. The European Commission stated (recital 55 of the contested decision) that many activities associated with distribution in the EMEIA region were carried out by related parties under service contracts.

10 AOE’s Irish branch is responsible for the manufacture and assembly of a specialised range of computer products in Ireland such as iMac desktops, MacBook laptops and other computer accessories, which it supplies to related parties for the EMEIA region. Key functions within that branch include production planning and scheduling, process engineering, production and operations, quality assurance and quality control, and refurbishing operations.

B. The contested tax rulings

11 The Irish tax authorities adopted advance tax decisions, known as ‘tax rulings’, in relation to certain taxpayers who had made requests to that effect. By letters of 29 January 1991 and 23 May 2007 (collectively, ‘the contested tax rulings’), the Irish tax authorities indicated their agreement with the proposals made by the Apple Group’s representatives concerning the chargeable profits of ASI and AOE in Ireland. Those rulings are described in recitals 59 to 62 of the contested decision.

1. The 1991 tax ruling

(a) The tax base of ACL, AOE’s predecessor

12 By letter of 12 October 1990, addressed to the Irish tax authorities, the Apple Group’s tax advisors described ACL’s operations in Ireland, indicating the functions performed by its Irish branch established in Cork (Ireland). In addition, it was stated that the branch was the owner of the assets relating to the manufacturing activities, but that AOE retained ownership of the materials used, works in progress and finished products.

13 Following the letter from the Apple Group’s representatives to the Irish tax authorities of 16 January 1991 and the response from those authorities of 24 January 1991, those authorities confirmed, by letter of 29 January 1991, the terms proposed by the Apple Group, as described below. Thus, pursuant to those terms, confirmed by the Irish tax authorities, ACL’s chargeable profit in Ireland, relating to income from its Irish branch, was calculated on the basis of the following elements: – 65% of that branch’s operating costs up to an annual amount of [confidential] ( 1 ) and 20% of its operating costs in excess of [confidential]; – if the overall profit of ACL’s Irish branch was less than the figure obtained using that formula, that lower figure was to be used to determine the branch’s net profit; – the operating costs to be taken into consideration for that calculation were to include all operating expenses, excluding materials for resale and cost-share for intangibles charged from companies affiliated with the Apple Group; – a capital allowance could be claimed, provided it did not exceed by [confidential] the depreciation charged in the relevant accounts.

(b) The tax base of ACAL, ASI’s predecessor

14 By letter of 2 January 1991, the Apple Group’s tax advisors informed the Irish tax authorities of the existence of a new company, Apple Computer Accessories Ltd (ACAL), the Irish branch of which was described as being responsible for sourcing products intended for export from Irish manufacturers.

15 On 16 January 1991 the Apple Group’s representatives sent a letter to the Irish tax authorities summarising the terms of the agreement which had been concluded during a meeting between that group and those authorities on 3 January 1991 as regards ACAL’s chargeable profit. According to that letter, the calculation of the branch’s profit had to be based on a margin of 12.5% of operating costs (excluding materials for resale).

16 By letter of 29 January 1991, the Irish tax authorities confirmed the terms of the agreement as expressed in the letter of 16 January 1991.

2. The 2007 tax ruling

17 By letter of 16 May 2007 addressed to the Irish tax authorities, the Apple Group’s tax advisors summarised their proposal for revising the method for determining the tax base of the Irish branches of ASI and AOE.

18 Regarding the Irish branch of ASI (the successor to Apple Computer International, itself the successor to ACAL), it was proposed that the chargeable profit to be allocated to that branch correspond to [confidential] of its operating costs, excluding costs such as sums invoiced from affiliated companies within the Apple Group and material costs.

19 Regarding AOE’s Irish branch, the chargeable profit was to correspond to the sum of, on the one hand, an amount corresponding to [confidential] of the branch’s operating costs, excluding costs such as the sums invoiced from affiliated companies within the Apple Group and material costs, and, on the other, an amount corresponding to the IP return for the manufacturing process technology developed by that branch, namely [confidential] of that branch’s turnover. A deduction was to be allowed in respect of capital allowances for plant and buildings ‘computed and allowed in the normal manner’.

20 It was proposed that the terms of the future agreement enter into force with effect from 1 October 2007 for both branches, that those terms be applicable for five years if the circumstances remained unchanged, and that they be subsequently renewed on an annual basis. It was also stated that the agreement could be applied to any new entities that might be created or transformed within the Apple Group, provided their activities corresponded to those carried out by AOE, namely manufacturing in Ireland, and by ASI, namely activities not connected with manufacturing, such as sales and services in general.

21 By letter of 23 May 2007, the Irish tax authorities confirmed their agreement with all the proposals set out in the letter of 16 May 2007. That agreement was applied until the 2014 tax year.

C. The administrative procedure before the Commission

22 By letter of 12 June 2013, the Commission requested Ireland to provide it with information on the subject of tax rulings practice in its territory, in particular on the subject of the tax rulings that had been granted to certain entities in the Apple Group, including ASI and AOE.

23 By decision of 11 June 2014, the Commission opened the formal investigation procedure laid down in Article 108(2) TFEU (‘the Opening Decision’) concerning the contested tax rulings issued by the Irish tax authorities regarding the chargeable profits allocated to the Irish branches of ASI and AOE, on the ground that those rulings could constitute State aid for the purposes of Article 107(1) TFEU. According to the Commission, the contested tax rulings would have been capable of conferring an advantage on the undertakings to which they had been granted if they had endorsed a transfer pricing agreement which departed from the conditions that would have been set between independent market operators (the arm’s length principle). That decision was published in the Official Journal on 17 October 2014.

24 By letters of 5 September and 17 November 2014, Ireland and Apple Inc. submitted their respective observations regarding the Opening Decision.

25 During the formal investigation procedure, several exchanges and meetings took place between the Commission, the Irish tax authorities and Apple Inc. (recitals 11 to 38 of the contested decision). In addition, Apple Inc. and Ireland submitted two ad hoc reports regarding the allocation of profits to the Irish branches of ASI and AOE, drawn up by their respective tax advisors.

D. The contested decision

26 On 30 August 2016 the Commission adopted the contested decision. After describing the factual and legal background (Section 2) and the administrative procedure (Sections 3 to 7), the Commission focused on analysing the existence of aid (Section 8).

27 First, the Commission noted that the contested tax rulings had been granted by the Irish tax administration and were therefore imputable to the State. In so far as those rulings entailed a reduction in the amount of ASI and AOE’s tax liability, Ireland had renounced tax revenue, which had given rise to a loss of State resources (recital 221 of the contested decision).

28 Secondly, as ASI and AOE were part of the Apple Group, operating in all Member States, the contested tax rulings were thus liable to affect trade within the European Union (recital 222 of the contested decision).

29 Thirdly, in so far as the contested tax rulings had led to a reduction in ASI and AOE’s tax bases, for the purpose of establishing corporation tax in Ireland, they conferred an advantage on those two companies (recital 223 of the contested decision).

30 In addition, according to the Commission, as the contested tax rulings were granted only to ASI and AOE, it could be presumed that they were selective in nature. However, for the sake of completeness, the Commission contended that the contested tax rulings constituted a derogation from the reference framework, namely the ordinary rules of corporation tax in Ireland (recital 224 of the contested decision).

31 Fourthly, if it were to turn out that the contested tax rulings entailed a reduction in the amount of ASI and AOE’s tax liability, those rulings would thus be liable to improve the competitive position of those two companies and, accordingly, to distort or threaten to distort competition (recital 222 of the contested decision).

1. The existence of a selective advantage

32 In Section 8.2 of the contested decision, the Commission followed the three-step analysis derived from case-law in order to prove the existence of a selective advantage in the present instance. Thus, first of all, it identified the reference framework and provided grounds for applying the arm’s length principle in that case. Next, it examined whether there was a selective advantage arising from a derogation from the reference framework. In essence, relying on primary, subsidiary and alternative lines of reasoning, the Commission considered that the contested tax rulings had enabled ASI and AOE to reduce the amount of tax for which they were liable in Ireland during the period when those rulings were in force, namely the period from 1991 to 2014 (‘the reference period’), and that this represented an advantage as compared with other companies in a comparable situation. Lastly, the Commission stated that neither Ireland nor Apple Inc. had put forward arguments to justify that selective advantage.

(a) The reference framework

33 In recitals 227 to 243 of the contested decision, the Commission considered that the reference framework consisted of the ordinary rules of taxation of corporate profit in Ireland, the objective of which was to tax the profits of all companies subject to tax in Ireland. In light of that objective, the Commission considered that integrated companies and stand-alone companies were in a comparable factual and legal situation. Accordingly, section 25 of the Taxes Consolidation Act 1997 (‘the TCA 97’), which provides for the taxation of non-resident companies in respect of trading income arising directly or indirectly through the active branch in Ireland, had to be regarded as forming an integral part of the reference framework and not as a separate reference framework.

(b) The arm’s length principle

34 In recitals 244 to 263 of the contested decision, the Commission stated that, under section 25 of the TCA 97, in light of its intended purpose, that provision had to be applied in connection with a profit allocation method. In that regard, it noted that Article 107(1) TFEU required the profit allocation method to be based on the arm’s length principle, regardless of whether or not the Member State concerned had incorporated the arm’s length principle into its national legal system. The Commission based that consideration on two premisses. First, it recalled that any tax measure adopted by a Member State had to comply with the rules on State aid. Secondly, it contended that it followed from the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), that a reduction in the tax base resulting from a tax measure enabling a taxpayer to employ transfer pricing in intra-group transactions that did not resemble prices that would have been charged in conditions of free competition would confer a selective advantage on that taxpayer for the purposes of Article 107(1) TFEU.

35 Thus, the Commission contended, on the basis of the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), that the arm’s length principle constituted a benchmark for establishing whether an integrated company was receiving a selective advantage for the purposes of Article 107(1) TFEU as a result of a tax measure determining its transfer pricing and thus its tax base. That principle was intended to ensure that intra-group transactions be treated, for tax purposes, in the same way as those carried out between non-integrated stand-alone companies, so as to avoid unequal treatment of companies in a similar factual and legal situation, having regard to the objective of such a system, which was to tax the profits of all companies falling within its fiscal jurisdiction.

36 As regards the guidelines developed within the framework of the Organisation for Economic Cooperation and Development (OECD), the Commission indicated that these constituted simply useful guidance for tax authorities, to ensure that the profit allocation and transfer pricing methods produce outcomes in line with market conditions.

(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)

37 Primarily, in recitals 265 to 321 of the contested decision, the Commission contended that the fact that the Irish tax authorities had accepted, in the contested tax rulings, the premiss that the Apple Group IP licences held by ASI and AOE had to be allocated outside Ireland had led to ASI and AOE’s annual chargeable profits in Ireland departing from a reliable approximation of a market-based outcome in line with the arm’s length principle.

38 In essence, the Commission considered that the IP licences held by ASI and AOE for the procurement, manufacture, sale and distribution of the Apple Group’s products outside North and South America, which it had identified as ‘the Apple IP licences’, had contributed significantly to those two companies’ income.

39 Thus, the Commission criticised the Irish tax authorities for having incorrectly allocated assets, functions and risks to the head offices of ASI and AOE, although those head offices had no physical presence or employees. More specifically, regarding the functions related to the IP licences, the Commission contended that such functions could not have been performed only by ASI and AOE’s boards of directors, without any staff, as shown by the lack of references to discussions and decisions in that regard in the board minutes provided to the Commission. Therefore, according to the Commission, in so far as the head offices of ASI and AOE had been unable to control or manage the Apple Group’s IP licences, those head offices should not have been allocated, in an arm’s length context, the profits derived from the use of those licences. Accordingly, those profits should have been allocated to ASI and AOE’s branches, which alone would have been in a position effectively to perform functions related to the Apple Group’s IP that were crucial to ASI and AOE’s trading activity.

40 Consequently, by failing to allocate the profits deriving from the Apple Group’s IP to ASI and AOE’s branches, thereby acting in breach of the arm’s length principle, the Irish tax authorities had conferred an advantage on ASI and AOE for the purposes of Article 107(1) TFEU in the form of a reduction in their respective annual chargeable profits. According to the Commission, that advantage was of a selective nature, because it entailed a reduction in ASI and AOE’s tax liability in Ireland as compared with non-integrated companies whose chargeable profits reflected prices negotiated at arm’s length on the market.

(d) Selective advantage resulting from the inappropriate choice of methods for allocating profits to ASI and AOE’s Irish branches (subsidiary line of reasoning)

41 As a subsidiary argument, in recitals 325 to 360 of the contested decision, the Commission contended that, even if the Irish tax authorities had been correct in accepting the assumption that the Apple IP licences held by ASI and AOE had to be allocated outside Ireland, the profit allocation methods approved by the contested tax rulings had nonetheless resulted in an annual chargeable profit for ASI and AOE in Ireland which departed from a reliable approximation of a market-based outcome in line with the arm’s length principle. According to the Commission, those methods were based on inappropriate methodological choices, which had led to a reduction in the amount of tax that ASI and AOE were required to pay as compared with non-integrated companies whose chargeable profits under those rules were determined by prices negotiated at arm’s length on the market. Therefore, according to the Commission, the contested tax rulings, by approving those methods, had conferred a selective advantage on ASI and AOE for the purposes of Article 107(1) TFEU.

(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)

42 Using an alternative line of reasoning, in recitals 369 to 403 of the contested decision, the Commission argued that, even if it had to be considered that the reference framework consisted solely of section 25 of the TCA 97, the contested tax rulings had conferred a selective advantage on ASI and AOE in the form of a reduction of their tax base in Ireland. First, the Commission contended that the application of section 25 of the TCA 97 in Ireland was based on the arm’s length principle. However, in the present instance, the Commission had shown that the contested tax rulings had departed from a reliable approximation of a market-based outcome in line with the arm’s length principle, which had conferred an economic advantage on ASI and AOE. Secondly and in any event, the Commission argued that, even if it had to be considered that the application of section 25 of the TCA 97 was not based on the arm’s length principle, it was necessary to conclude that the contested tax rulings had been issued by the Irish tax authorities on a discretionary basis, in the absence of objective criteria related to the Irish tax system, and that, as a result, they conferred a selective advantage on ASI and AOE.

(f) Conclusion regarding the selective advantage

43 The Commission concluded that the contested tax rulings gave rise to a reduction in the charges that ASI and AOE would normally have been required to bear in the course of their business operations and that, accordingly, those rulings had to be regarded as having granted those two companies operating aid. However, it contended that, in so far as ASI and AOE were part of the Apple Group, which is multinational in nature, and in so far as that group had to be regarded as a single economic unit for the purposes of case-law, that group had benefited as a whole from the State aid granted by Ireland by way of the contested tax rulings (Section 8.3 of the contested decision).

2. Incompatibility, unlawfulness and recovery of the aid

44 The Commission noted that those aid measures were incompatible with the internal market under Article 107(3)(c) TFEU and that, as they had not been notified beforehand, they constituted unlawful State aid put into effect in breach of Article 108(3) TFEU (Sections 8.5 and 9 of the contested decision).

45 Lastly (Section 11 of the contested decision), the Commission stated that Ireland was required to recover the aid granted by the contested tax rulings for the period running from 12 June 2003 to 27 September 2014. It specified that the amount to be recovered had to be calculated on the basis of a comparison between the tax actually paid and that which should have been paid if, had the rulings not been issued, the ordinary rules of taxation had been applied.

46 Regarding the arguments concerning the infringement of Ireland and Apple Inc.’s procedural rights during the administrative procedure, the Commission stated that, as the scope of its investigation concerning the existence of State aid had remained unchanged from the Opening Decision to the adoption of the contested decision, their rights had been fully respected (Section 10 of the contested decision).

3. Operative part

47 The operative part of the contested decision reads as follows: ‘Article 1 1. The tax rulings issued by Ireland on 29 January 1991 and 23 May 2007 in favour of Apple Sales International, which enable the latter to determine its tax liability in Ireland on a yearly basis, constitute aid within the meaning of Article 107(1) of the Treaty. That aid was unlawfully put into effect by Ireland in breach of Article 108(3) of the Treaty and is incompatible with the internal market. 2. The tax rulings issued by Ireland on 29 January 1991 and 23 May 2007 in favour of Apple Operations Europe International, which enable the latter to determine its tax liability in Ireland on a yearly basis, constitute aid within the meaning of Article 107(1) of the Treaty. That aid was unlawfully put into effect by Ireland in breach of Article 108(3) of the Treaty and is incompatible with the internal market. Article 2 1. Ireland shall recover the aid referred to in Article 1(1) from Apple Sales International. 2. Ireland shall recover the aid referred to in Article 1(2) from Apple Operations Europe. 3. The sums to be recovered shall bear interest from the date on which they were put at the disposal of the beneficiaries until their actual recovery. 4. The interest shall be calculated on a compound basis in accordance with Chapter V of Regulation (EC) No 794/2004. Article 3 1. Recovery of the aid referred to in Article 1 shall be immediate and effective. 2. Ireland shall ensure that this Decision is implemented within four months following the date of its notification. Article 4 1. Within two months following notification of this Decision, Ireland shall submit information to the Commission regarding the method used to calculate the exact amount of aid. 2. Ireland shall keep the Commission informed of the progress of the national measures taken to implement this Decision until recovery of the aid referred to in Article 1 has been completed. Upon a simple request by the Commission it shall immediately submit information on the measures already taken and those planned to comply with this Decision. Article 5 This Decision is addressed to Ireland.’

II. Procedure and forms of order sought

A. Case T‑778/16

48 By application lodged at the Registry of the General Court on 9 November 2016, Ireland brought the action in Case T‑778/16.

1. The composition of the formation of the Court and priority treatment

49 By decision of 29 November 2016, the President of the Seventh Chamber of the General Court granted Ireland’s application to give Case T‑778/16 priority treatment under Article 67(2) of the Rules of Procedure of the General Court.

50 By document lodged at the Court Registry on 9 November 2016, Ireland requested that Case T‑778/16 be decided by a Chamber sitting in extended composition. On 18 January 2017 the Court took formal note, in accordance with Article 28(5) of the Rules of Procedure, of the fact that Case T‑778/16 had been assigned to the Seventh Chamber, Extended Composition.

51 As two Members of the Seventh Chamber, Extended Composition, were prevented from sitting, the President of the General Court, by decisions of 21 February 2017 and 21 May 2019 respectively, designated the Vice-President of the General Court and another judge to complete the Chamber.

2. The interventions

52 By document lodged at the Court Registry on 20 March 2017, the Grand Duchy of Luxembourg applied for leave to intervene in Case T‑778/16 in support of the form of order sought by Ireland.

53 By document lodged at the Court Registry on 30 March 2017, the Republic of Poland applied for leave to intervene in Case T‑778/16 in support of the form of order sought by the Commission.

54 By order of 19 July 2017, the President of the Seventh Chamber, Extended Composition, granted the Grand Duchy of Luxembourg and the Republic of Poland leave to intervene.

3. The applications for confidential treatment

55 By document lodged at the Court Registry on 26 April 2017, Ireland requested that a part of its application and certain documents appended thereto, including the contested decision, and a part of the defence and certain documents appended thereto be treated as confidential vis-à-vis the Grand Duchy of Luxembourg and the Republic of Poland.

56 By document lodged at the Court Registry on 31 May 2017, Ireland requested that the name of the Apple Group’s tax advisors be treated as confidential vis-à-vis the public.

57 By documents lodged at the Court Registry on 26 and 29 November 2018, Ireland partially withdrew its applications for confidential treatment.

58 The Grand Duchy of Luxembourg and the Republic of Poland received non-confidential versions of the documents in question. The Grand Duchy of Luxembourg raised no objections to the applications for confidential treatment made in relation to it, while the Republic of Poland challenged the applications for confidential treatment made in relation to it.

59 By order of 14 December 2018, Ireland v Commission (T‑778/16, not published, EU:T:2018:1019), the President of the Seventh Chamber, Extended Composition, granted, in part, the applications for confidential treatment made in relation to the Republic of Poland and rejected them as to the remainder. The Republic of Poland received non-confidential versions of the documents in question in accordance with the terms of that order.

4. Forms of order sought

60 Ireland claims that the Court should: – annul the contested decision; – order the Commission to pay the costs in Case T‑778/16.

61 The Commission contends that the Court should: – dismiss the action in Case T‑778/16 as unfounded; – order Ireland to pay the costs in Case T‑778/16.

62 The Grand Duchy of Luxembourg contends that the Court should annul the contested decision, in accordance with the form of order sought by Ireland.

63 The Republic of Poland contends, in essence, that the Court should dismiss the action in Case T‑778/16, in accordance with the form of order sought by the Commission.

B. Case T‑892/16

64 By application lodged at the Court Registry on 19 December 2016, ASI and AOE brought the action in Case T‑892/16.

1. The composition of the formation of the Court, priority treatment, and joinder

65 By document lodged at the Court Registry on 8 February 2017, ASI and AOE applied for priority treatment to be given to Case T‑892/16 under Article 67(2) of the Rules of Procedure and requested that that case and Case T‑778/16 be joined for the purposes of the written and oral parts of the procedure and of the decision closing the proceedings.

66 By decision of 6 April 2017, the President of the Seventh Chamber of the General Court granted the application to give Case T‑892/16 priority treatment under Article 67(2) of the Rules of Procedure.

67 Acting on a proposal from the Seventh Chamber, the Court decided, on 17 May 2017, pursuant to Article 28 of the Rules of Procedure, to assign the case to a Chamber sitting in extended composition.

68 As two Members of the Seventh Chamber, Extended Composition, were prevented from sitting, the President of the General Court, by decisions of 8 June 2017 and 21 May 2019 respectively, designated the Vice-President of the General Court and another judge to complete the Chamber.

2. The interventions

69 By document lodged at the Court Registry on 30 March 2017, IBEC Company Limited by Guarantee applied for leave to intervene in Case T‑892/16 in support of the form of order sought by ASI and AOE. Pursuant to Article 19(2) of the Rules of Procedure, the President of the Seventh Chamber, Extended Composition, referred the decision regarding that application, which fell within his remit, to the Seventh Chamber, Extended Composition. By order of 15 December 2017, Apple Sales International and Apple Operations Europe v Commission (T‑892/16, not published, EU:T:2017:926), the Court rejected IBEC Company Limited by Guarantee’s application for leave to intervene.

70 By document lodged at the Court Registry on 31 March 2017, the EFTA Surveillance Authority applied for leave to intervene in Case T‑892/16 in support of the form of order sought by the Commission. By order of 19 July 2017, the President of the Seventh Chamber, Extended Composition, granted the EFTA Surveillance Authority leave to intervene.

71 By document lodged at the Court Registry on 31 March 2017, Ireland applied for leave to intervene in Case T‑892/16 in support of the form of order sought by ASI and AOE. By decision of 28 June 2017, the President of the Seventh Chamber, Extended Composition, granted Ireland leave to intervene.

72 By document lodged at the Court Registry on 13 April 2017, the United States of America applied for leave to intervene in Case T‑892/16 in support of the form of order sought by ASI and AOE. Pursuant to Article 19(2) of the Rules of Procedure, the President of the Seventh Chamber, Extended Composition, referred the decision regarding that application, which fell within his remit, to the Seventh Chamber, Extended Composition. By order of 15 December 2017, Apple Sales International and Apple Operations Europe v Commission (T‑892/16, not published, EU:T:2017:925), the Court rejected the United States of America’s application for leave to intervene. The United States of America brought an appeal against that order. By order of 17 May 2018, United States of America v Apple Sales International and Others (C‑12/18 P(I), not published, EU:C:2018:330), that appeal was dismissed.

3. The applications for confidential treatment

73 During the proceedings, ASI and AOE requested that certain procedural documents be treated as confidential vis-à-vis the EFTA Surveillance Authority. By document lodged at the Court Registry on 1 October 2018, they withdrew that request.

4. Forms of order sought

74 ASI and AOE claim that the Court should: – annul the contested decision; – in the alternative, annul the contested decision in part; – order the Commission to pay the costs.

75 The Commission contends that the Court should: – dismiss the action; – order ASI and AOE to pay the costs.

76 Ireland contends that the Court should annul the contested decision, in accordance with the form of order sought by ASI and AOE.

77 The EFTA Surveillance Authority contends that the Court should: – dismiss the action in Case T‑892/16 as unfounded; – order ASI and AOE to pay the costs in Case T‑892/16.

C. Joinder of the cases and the oral part of the procedure

78 By document lodged at the Court Registry on 8 February 2017, ASI and AOE requested that Cases T‑778/16 and T‑892/16 be joined.

79 By decision of 21 June 2017, the President of the Seventh Chamber, Extended Composition, decided not to join Cases T‑778/16 and T‑892/16 at that stage of the proceedings.

80 By decision of the President of the Seventh Chamber, Extended Composition, of 9 July 2019, Cases T‑778/16 and T‑892/16 were joined for the purposes of the oral part of the procedure pursuant to Article 68 of the Rules of Procedure.

81 Acting on a proposal from the Judge-Rapporteur, the Court decided to open the oral part of the procedure and, in connection with the measures of organisation of procedure provided for in Article 89 of the Rules of Procedure, requested the parties to answer written questions. The parties complied with that measure of organisation of procedure within the prescribed period.

82 By document lodged at the Court Registry on 23 August 2019, the Commission requested that certain information contained in its response to the measures of organisation of procedure be treated as confidential vis-à-vis the Grand Duchy of Luxembourg and the Republic of Poland.

83 The Grand Duchy of Luxembourg and the Republic of Poland received non-confidential versions of that response.

84 The parties presented oral argument and responded to the oral questions put by the Court at the hearing on 17 and 18 September 2019. At the hearing, ASI and AOE and the Commission made certain observations regarding the report for the hearing, a formal note of which was made by the Court in the minutes of the hearing.

85 In addition, the parties were heard at the hearing regarding a possible joinder of Cases T‑778/16 and T‑892/16 for the purposes of the decision closing the proceedings, a formal note of which was made by the Court in the minutes of the hearing.

III. Law

A. Joinder of Cases T‑778/16 and T‑892/16 for the purposes of the decision closing the proceedings

86 Pursuant to Article 19(2) of the Rules of Procedure, the President of the Seventh Chamber, Extended Composition, referred the decision regarding the joinder of Cases T‑778/16 and T‑892/16 for the purposes of the decision closing the proceedings, which fell within his remit, to the Seventh Chamber, Extended Composition.

87 As the parties were heard at the hearing regarding a possible joinder, it is appropriate to join Cases T‑778/16 and T‑892/16 for the purposes of the decision closing the proceedings, on account of the connection between them.

B. Pleas in law relied on and framework for examining the present actions

88 By their actions, Ireland, in Case T‑778/16, and ASI and AOE, in Case T‑892/16, seek annulment of the contested decision inasmuch as it stated that the contested tax rulings constituted State aid for the purposes of Article 107(1) TFEU and ordered the recovery of sums which would not have been collected from those companies by Ireland as corporation tax.

89 In support of their actions, Ireland and ASI and AOE raise 9 pleas in law and 14 pleas in law respectively, which overlap for the most part.

90 In the first place, those pleas are intended, in essence, to challenge the Commission’s primary line of reasoning, in particular as a result of errors concerning the assessment of the existence of a selective advantage (first to third pleas in law in Case T‑778/16 and first to sixth pleas in law in Case T‑892/16) and the assessment relating to the concept of State intervention (part of the second plea in law in Case T‑778/16).

91 More specifically, in the context of challenging the Commission’s primary line of reasoning, first, it is alleged that the Commission carried out a joint assessment of the concept of an advantage and the concept of selectivity (part of the second plea in law in Case T‑778/16). Secondly, it is alleged that the Commission incorrectly identified the reference framework, inter alia on the basis of incorrect assessments of Irish law (part of the first and second pleas in law in Case T‑778/16 and first plea in law in Case T‑892/16), misapplied the arm’s length principle (part of the first and third pleas in law in Case T‑778/16 and part of the first and second pleas in law in Case T‑892/16), and inappropriately applied the OECD guidelines (part of the second plea in law in Case T‑778/16 and fifth plea in law in Case T‑892/16). Thirdly, Ireland and ASI and AOE contest the Commission’s assessments relating to activities within the Apple Group (part of the first plea in law in Case T‑778/16 and third to fifth pleas in law in Case T‑892/16). Fourthly, they contest the assessments relating to the selective nature of the contested tax rulings (part of the second plea in law in Case T‑778/16 and sixth plea in law in Case T‑892/16).

92 In the second place, Ireland and ASI and AOE contest 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).

93 In the third place, Ireland and ASI and AOE contest 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).

94 In the fourth place, ASI and AOE contest the recovery of the aid ordered in the contested decision, on the ground that it is impossible to calculate the amount to be recovered under the Commission’s subsidiary and alternative lines of reasoning (10th plea in law in Case T‑892/16).

95 In the fifth place, Ireland and ASI and AOE argue that the investigation carried out by the Commission in the administrative procedure was conducted in breach of essential procedural requirements, in particular the right to be heard (6th plea in law in Case T‑778/16 and 7th and 12th pleas in law in Case T‑892/16).

96 In the sixth place, Ireland and ASI and AOE contest the recovery ordered by the contested decision in breach of, in particular, the principles of legal certainty and the protection of legitimate expectations (7th plea in law in Case T‑778/16 and 11th plea in law in Case T‑892/16).

97 In the seventh place, Ireland and ASI and AOE criticise the Commission for encroaching on the competences of the Member States, invoking, in particular, the principle of fiscal autonomy (8th plea in law in Case T‑778/16 and 14th plea in law in Case T‑892/16).

98 In the eighth place, Ireland and ASI and AOE argue that the contested decision contains an inadequate statement of reasons (9th plea in law in Case T‑778/16 and 13th plea in law in Case T‑892/16).

99 It is necessary to begin by analysing the pleas in law challenging the Commission’s competence to adopt the contested decision before addressing the other pleas in law in the order in which they have been summarised in paragraphs 90 to 96 and paragraph 98 above.

100 As a preliminary point and for the purposes of the subsequent assessment of the legality of the contested decision, it should be borne in mind that, in the context of State aid control, in order to assess whether the contested tax rulings constituted such aid, it was for the Commission to demonstrate that the conditions for the existence of State aid for the purposes of Article 107(1) TFEU were satisfied. Although the Commission may classify a tax measure as State aid (see, to that effect, judgments of 2 July 1974, Italy v Commission, 173/73, EU:C:1974:71, paragraph 28, and of 22 June 2006, Belgium and Forum 187 v Commission, C‑182/03 and C‑217/03, EU:C:2006:416, paragraph 81), it may do so only in so far as the conditions for such a classification are satisfied (see, to that effect, judgment of 22 June 2006, Belgium and Forum 187 v Commission, C‑182/03 and C‑217/03, EU:C:2006:416, paragraph 84).

101 Thus, it was, in principle, for the Commission to provide proof, in the contested decision, of the existence of such aid (see, to that effect, judgments of 12 September 2007, Olympiaki Aeroporia Ypiresies v Commission, T‑68/03, EU:T:2007:253, paragraph 34, and of 25 June 2015, SACE and Sace BT v Commission, T‑305/13, EU:T:2015:435, paragraph 95). Accordingly, it was for the Commission to demonstrate, in particular, the existence of a selective advantage resulting from the issuing of the contested tax rulings.

102 It is therefore necessary, in the light of the foregoing considerations, to analyse the pleas in law relied on by Ireland and by ASI and AOE challenging the legality of the contested decision.

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 T‑778/16 and 14th plea in law in Case T‑892/16)

103 In essence, Ireland and ASI and AOE argue that the contested decision constitutes a breach of the fundamental constitutional principles of the EU legal order governing the division of competences between the Union and the Member States as laid down in, inter alia, Articles 4 and 5 TEU, and of the principle of the fiscal autonomy of the Member States deriving therefrom. They argue that, under EU law as it currently stands, the field of direct taxation falls within the competence of the Member States.

104 The Commission disputes those arguments. In essence, it recalls that, while the Member States enjoy fiscal sovereignty, any tax measure adopted by a Member State must comply with the EU rules on State aid. Thus, the Member States may not, using tax measures, discriminate between economic operators in a similar situation without giving rise to State aid creating distortions of the market. However, the contested tax rulings enabled ASI and AOE to reduce their chargeable profit as compared to the chargeable profit of other corporate taxpayers falling within the general Irish corporate tax system, giving rise to unlawful and incompatible State aid.

105 According to settled case-law, while direct taxation, as EU law currently stands, falls within the competence of the Member States, they must nonetheless exercise that competence consistently with EU law (see judgment of 12 July 2012, Commission v Spain, C‑269/09, EU:C:2012:439, paragraph 47 and the case-law cited). Thus, instances of intervention by the Member States in the field of direct taxation, even if they concern issues that have not been harmonised in the European Union, are not excluded from the scope of the rules on State aid control.

106 Accordingly, the Commission may classify a tax measure as State aid so long as the conditions for such a classification are satisfied (see, to that effect, judgments of 2 July 1974, Italy v Commission, 173/73, EU:C:1974:71, paragraph 28, and of 22 June 2006, Belgium and Forum 187 v Commission, C‑182/03 and C‑217/03, EU:C:2006:416, paragraphs 81 and 84). The Member States must exercise their competence in the field of taxation consistently with EU law (judgment of 3 June 2010, Commission v Spain, C‑487/08, EU:C:2010:310, paragraph 37). Consequently, they must refrain from taking, in that context, any measure liable to constitute State aid incompatible with the internal market.

107 Regarding the condition that the measure in question must confer an economic advantage, it should be borne in mind that, according to settled case-law, measures which, whatever their form, are likely directly or indirectly to favour certain undertakings or are to be regarded as an economic advantage that the recipient undertaking would not have obtained under normal market conditions are regarded as State aid (see judgment of 2 September 2010, Commission v Deutsche Post, C‑399/08 P, EU:C:2010:481, paragraph 40 and the case-law cited; judgment of 9 October 2014, Ministerio de Defensa and Navantia, C‑522/13, EU:C:2014:2262, paragraph 21).

108 More specifically, a measure by which the public authorities grant certain undertakings favourable tax treatment which, although not involving a transfer of State resources, places the recipients in a more favourable financial situation than that of other taxpayers constitutes State aid for the purposes of Article 107(1) TFEU (judgment of 15 March 1994, Banco Exterior de España, C‑387/92, EU:C:1994:100, paragraph 14; see, also, judgment of 8 September 2011, Paint Graphos and Others, C‑78/08 to C‑80/08, EU:C:2011:550, paragraph 46 and the case-law cited).

109 It follows from the foregoing that, as the Commission is competent to ensure that Article 107 TFEU is complied with, it cannot be said to have exceeded its competences when assessing whether, in issuing the contested tax rulings, the Irish tax authorities had granted ASI and AOE favourable tax treatment by enabling them to reduce their chargeable profit as compared with the chargeable profit of other corporate taxpayers in a comparable situation.

110 In the case of tax measures, the very existence of an advantage may be established only when compared with ‘normal’ taxation (judgment of 6 September 2006, Portugal v Commission, C‑88/03, EU:C:2006:511, paragraph 56). Accordingly, such a measure confers an economic advantage on its recipient where it mitigates the burdens normally included in the budget of an undertaking and, as a result, without being a subsidy in the strict meaning of the word, is similar in character and has the same effect (judgment of 9 October 2014, Ministerio de Defensa and Navantia, C‑522/13, EU:C:2014:2262, paragraph 22).

111 Consequently, in order to determine whether there is a tax advantage, it is necessary to compare the recipient’s situation resulting from the application of the measure in question with its situation had the measure in question not been adopted (see, to that effect, judgment of 26 April 2018, Cellnex Telecom and Telecom Castilla-La Mancha v Commission, C‑91/17 P and C‑92/17 P, not published, EU:C:2018:284, paragraph 114), and had the normal rules of taxation been applied.

112 Ireland and ASI and AOE argue that the Commission exceeded its competences inasmuch as it relied on a unilateral and incorrect interpretation of Irish tax law, in particular section 25 of the TCA 97. In addition, it imposed procedural rules for assessing national taxation that do not exist in Irish law. Furthermore, the Commission exceeded its competences by stating as a ground for adopting the contested decision that ASI and AOE were stateless for tax residency purposes.

113 In that regard, first, it should be noted that, pursuant to section 25 of the TCA 97, non-resident companies carrying on their trade in Ireland through a branch are taxed, with regard to their trading income, only on the profits resulting from trade directly or indirectly attributable to that Irish branch. It should also be noted that, pursuant to section 25 of the TCA 97, it is necessary to determine the trading income actually obtained directly or indirectly through the Irish branch and that that provision does not lay down any specific method for determining the profits attributable to the Irish branches of non-resident companies.

114 It is apparent from Ireland’s written pleadings and from the oral arguments of the parties at the hearing that, for the purpose of applying section 25 of the TCA 97, account must be taken of the factual background and the situation of the branch in Ireland, in particular the functions performed, the assets used and the risks assumed by that branch.

115 In those circumstances and as can be seen from the case-law cited in paragraph 111 above, in order to determine whether there was an advantage in the present instance, the Commission had to be able to analyse ASI and AOE’s tax treatment resulting from the application of the contested tax rulings against the tax treatment which those two companies would have received under the normal rules of taxation applicable in Ireland if the rulings in question had not been issued.

116 Therefore, it cannot be argued that the Commission unilaterally applied the substantive tax rules and carried out a de facto tax harmonisation when analysing whether the chargeable profits of ASI and AOE, calculated under the contested tax rulings, corresponded to profits made by their Irish branches, taking into account the functions performed, the assets used and the risks assumed by those branches, which would have been taxable under section 25 of the TCA 97.

117 Secondly, concerning the arguments that the Commission imposed procedural rules for assessing national taxation, thereby rewriting Irish tax law, Ireland disputes the complaints raised by the Commission regarding the contested tax rulings on the ground that they were not based on profit allocation reports (recitals 262 and 363 of the contested decision), that they had not been properly reviewed (recital 368 of the contested decision) and that, before issuing those rulings, the Irish tax authorities had not investigated other companies within the Apple Group, regardless of where those companies were operating (recital 274 of the contested decision).

118 In that regard, it should be borne in mind that it is apparent from the contested decision that the Commission concluded that there was a selective advantage, primarily, as a result of the non-allocation of the Apple Group’s IP licences to the Irish branches of ASI and AOE (recitals 265 to 321 of the contested decision), on a subsidiary basis, as a result of the inappropriate choice of methods for allocating profits to those Irish branches (recitals 325 to 360 of the contested decision) and, in the alternative, as a result of the contested tax rulings derogating from section 25 of the TCA 97 on a discretionary basis (recitals 369 to 403 of the contested decision).

119 Accordingly, it cannot be considered that the Commission relied on the complaints of a procedural nature summarised in paragraph 117 above in order to conclude that there was a selective advantage in the present instance. In those circumstances, the complaints relied on by Ireland must be set aside as ineffective.

120 Thirdly, regarding the statement that ASI and AOE were stateless for tax residency purposes, it should be noted that it is true that in, inter alia, recitals 52, 276, 277 and 281 of the contested decision, the Commission highlighted the fact that it considered ASI and AOE to be stateless for tax residency purposes in its reasoning leading to the conclusion that ASI and AOE did not exist outside Ireland except on paper.

121 However, the fact that the Commission emphasised in the contested decision that ASI and AOE were stateless for tax residency purposes does not mean that it based its conclusion that there was a selective advantage on that statement.

122 In those circumstances, for the same reasons as those set out in paragraph 119 above, it is necessary to set aside as ineffective the complaints relied on by Ireland and by ASI and AOE relating to the Commission having exceeded its competences by considering ASI and AOE to be stateless for tax residency purposes.

123 Having regard to the foregoing considerations, the 8th plea in law in Case T‑778/16 and the 14th plea in law in Case T‑892/16, alleging that the Commission exceeded its competences and that it encroached on the competences of the Member States, must be rejected.

124 In so far as the Commission was competent, in the context of State aid control, to examine whether the contested tax rulings had constituted such aid, it is therefore necessary to go on to analyse the pleas in law relied on by Ireland and by ASI and AOE which are intended to challenge the merits of each line of reasoning set out by the Commission in the contested decision in order to demonstrate the existence of a selective advantage in the present instance.

D. Pleas in law alleging errors made in connection with the Commission’s primary line of reasoning

125 By way of reminder, in its primary line of reasoning, the Commission contended, in essence, that, in so far as the head offices of ASI and AOE were unable to control or manage the Apple Group’s IP licences, those head offices should not have been allocated, in an arm’s length context, the profits derived from the use of those licences. Accordingly, those profits should have been allocated to ASI and AOE’s branches, which alone would have been in a position effectively to perform the functions related to the Apple Group’s IP that were crucial to ASI and AOE’s trading activity.

126 In addition, in response to the written questions put by the Court, the Commission specified that the phrase ‘profits derived from the use of the Apple IP licences’, which appears, inter alia, in recital 304 of the contested decision, had to be understood as meaning the profits resulting from the allocation of the economic ownership of the Apple Group’s IP licences to the Irish branches. According to the Commission, the profits resulting from the use of the Apple Group’s IP licences correspond to the profits derived from all of ASI and AOE’s sales activities.

127 Ireland and ASI and AOE contest the Commission’s primary line of reasoning, claiming, in essence, that the Commission erred in concluding that there was a selective advantage.

128 First, Ireland criticises the method of analysis used by the Commission in its primary line of reasoning inasmuch it did not analyse the advantage and selectivity conditions separately.

129 Next, Ireland and ASI and AOE challenge the conclusions reached following the analysis in the Commission’s primary line of reasoning. They argue that errors were made in the assessment of the reference framework and normal taxation under Irish tax law owing to the incorrect application by the Commission of section 25 of the TCA 97, its application of the arm’s length principle and its analysis in the light of the OECD 2010 Report on the Attribution of Profits to Permanent Establishments of 22 July 2010 (‘the Authorised OECD Approach’). Ireland and ASI and AOE challenge the Commission’s factual assessments concerning the activities within the Apple Group.

130 Lastly, Ireland and ASI and AOE contest the Commission’s conclusions regarding the selective nature of the contested tax rulings, in so far as, first, such selectivity cannot be presumed in the present instance and, second, ASI and AOE were not granted a derogation and did not receive selective treatment as compared with other undertakings in a comparable situation. Ireland claims that, in any event, even if such treatment were established, it would have been justified by the nature and the general scheme of the Irish tax system.

131 The Commission disputes the arguments relied on by Ireland and ASI and AOE.

132 It is appropriate to go on to analyse the pleas contesting the Commission’s primary line of reasoning by following the order of the complaints summarised in paragraphs 128 to 130 above.

1. Joint examination of the conditions of advantage and selectivity (part of the second plea in law in Case T‑778/16)

133 Ireland argues that the Commission disregarded principles well established in case-law by conflating the conditions of advantage and selectivity and complains that the Commission failed to examine those two concepts separately.

134 In that regard, it should be borne in mind that selectivity and advantage are two separate conditions. In respect of advantage, the Commission must show that the measure improves the financial situation of the recipient (see, to that effect, judgment of 2 July 1974, Italy v Commission, 173/73, EU:C:1974:71, paragraph 15). In respect of selectivity, the Commission must show that the advantage is not enjoyed by other undertakings in a legal and factual situation comparable to that of the recipient in the light of the objective of the reference framework (judgment of 8 September 2011, Paint Graphos and Others, C‑78/08 to C‑80/08, EU:C:2011:550, paragraph 49).

135 However, it is not inconceivable that those conditions may be examined together where it is apparent from the examination carried out by the Commission, first, that the measure in question confers an economic advantage on its recipient and, second, that that advantage is not enjoyed by undertakings in a comparable legal and factual situation.

136 Further, concerning tax measures more specifically, as is rightly contended by the Commission, the examination of advantage overlaps with the examination of selectivity in so far as, for those two conditions to be satisfied, it must be shown that the contested tax measure leads to a reduction in the amount of tax which would normally have been payable by the recipient of the measure under the ordinary tax regime which would, therefore, be applicable to other taxpayers in the same situation. Moreover, it is apparent from the case-law of the Court of Justice that those two conditions may be examined together as the ‘third condition’ laid down by Article 107(1) TFEU, requiring there to be a ‘selective advantage’ (see, to that effect, judgment of 30 June 2016, Belgium v Commission, C‑270/15 P, EU:C:2016:489, paragraph 32).

137 It is apparent from the contested decision that, in its analysis of whether there was a selective advantage (Section 8.2 of the contested decision), the Commission examined to what extent the contested tax rulings had led to a reduction in the amount payable by ASI and AOE in the form of corporation tax in Ireland in order to show that those rulings had given those companies an economic advantage. In addition, the Commission defined the reference framework as being the ordinary rules of taxation of corporate profit in Ireland (Section 8.2.1.1 of the contested decision). Moreover, in connection with its primary, subsidiary and alternative lines of reasoning (Sections 8.2.2.2 to 8.2.3.2 of the contested decision), the Commission examined whether, by reducing those undertakings’ annual chargeable profits, the contested tax rulings had derogated from that reference framework, in order to establish that those rulings were selective in nature.

138 In so far as the Commission did in fact examine both the advantage condition and the selectivity condition, it is irrelevant that that examination covered both conditions simultaneously. It cannot therefore be held that the Commission erred in law simply because it examined them together.

139 The complaint raised by Ireland relating to the fact that the conditions of advantage and selectivity were examined together must therefore be rejected as unfounded.

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 T‑778/16 and first, second and fifth pleas in law in Case T‑892/16)

(a) Reference framework

140 In recitals 227 to 243 of the contested decision, the Commission stated that the relevant reference framework for its analysis of whether there was a selective advantage was the ordinary rules of taxation of corporate profit under the Irish corporate tax system, which have as their intrinsic objective the taxation of profit of all companies subject to tax in that Member State.

141 The Commission considered that that reference framework included both non-integrated and integrated companies because Irish corporation tax does not distinguish between those companies.

142 In addition, the Commission considered that even though resident and non-resident companies were taxed on different sources of income, in the light of the intrinsic objective of those rules, namely the taxation of profit of all companies subject to tax in Ireland, both types of company were in a comparable factual and legal situation. Consequently, those rules included section 25 of the TCA 97, which therefore could not be considered to constitute a separate reference framework in itself.

143 Ireland and ASI and AOE contest that definition of the reference framework and claim, in essence, that the relevant reference framework in the present instance is section 25 of the TCA 97, a separate charging provision applicable specifically to non-resident companies which are not in a situation comparable to that of resident companies. In addition, according to Ireland and ASI and AOE, the matter of whether an undertaking is integrated or non-integrated is not the issue in the present instance; instead, the issue is the taxation of non-resident companies.

144 It should be noted that, when analysing tax measures in the context of Article 107(1) TFEU, the determination of the reference framework is relevant for examining both the advantage condition and the selectivity condition.

145 As has been noted in paragraph 110 above, in the case of tax measures, the very existence of an advantage can be established only by comparison with so-called ‘normal’ taxation. It is precisely that so-called ‘normal’ taxation that is established by the reference framework.

146 In addition, in order to classify a domestic tax measure as selective, it is necessary to begin by identifying and examining the ordinary or normal tax regime applicable in the Member State concerned (judgment of 8 September 2011, Paint Graphos and Others, C‑78/08 to C‑80/08, EU:C:2011:550, paragraph 49).

147 Moreover, the Court of Justice has confirmed its case-law according to which it is sufficient, in order to establish the selectivity of a measure that derogates from an ordinary tax system, to demonstrate that that measure benefits certain operators and not others, although all those operators are in an objectively comparable situation in the light of the objective pursued by the ordinary tax system (judgment of 21 December 2016, Commission v World Duty Free Group and Others, C‑20/15 P and C‑21/15 P, EU:C:2016:981, paragraph 76).

148 Indeed, while it is not always necessary, in order for it to be established that a tax measure is selective, that it should derogate from an ordinary tax system, the fact that it can be so characterised is highly relevant in that regard where the effect of that measure is that two categories of operators are distinguished and are subject, a priori, to different treatment, namely those who fall within the scope of the derogating measure and those who continue to fall within the scope of the ordinary tax system, although those two categories are in a comparable situation in the light of the objective pursued by that system (judgment of 21 December 2016, Commission v World Duty Free Group and Others, C‑20/15 P and C‑21/15 P, EU:C:2016:981, paragraph 77).

149 In addition, the Court of Justice has held that the legislative means used are not a decisive element for the purpose of determining the reference framework (judgment of 28 June 2018, Lowell Financial Services v Commission, C‑219/16 P, not published, EU:C:2018:508, paragraphs 94 and 95).

150 It is apparent from case-law that it is the rules of taxation to which the recipient of the measure that is regarded as constituting State aid is subject that form the reference framework. It is also apparent from case-law that the substantive scope of the reference framework can be defined only in relation to the measure that is regarded as constituting State aid. Therefore, the purpose of the measures at issue and the legal framework of which they form part must be taken into consideration when determining the reference framework.

151 Moreover, the Commission explained its interpretation of the concept of reference framework in the notice on the notion of State aid as referred to in Article 107(1) TFEU (OJ 2016 C 262, p. 1). Although that notice cannot bind the Court, it may nevertheless serve as a useful source of guidance (see, to that effect and by analogy, judgment of 26 July 2017, Czech Republic v Commission, C‑696/15 P, EU:C:2017:595, paragraph 53).

152 Paragraph 133 of the notice referred to in paragraph 151 above states, inter alia, that the reference system is composed of a consistent set of rules that generally apply — on the basis of objective criteria — to all undertakings falling within its scope as defined by its objective. Typically, those rules define not only the scope of the system, but also the conditions under which the system applies, the rights and obligations of undertakings that are subject to it and the technicalities of the way in which it functions.

153 Therefore, it is in the light of the foregoing considerations that the Court must assess whether the Commission correctly identified the relevant reference framework for examining the selectivity of the contested tax rulings.

154 In the present instance, upon reading the contested tax rulings, as described in paragraphs 11 to 21 above, it is clear that they were issued in order to allow ASI and AOE to determine their chargeable profits in Ireland for the purposes of corporation tax in that Member State.

155 Accordingly, the contested tax rulings form part of the general Irish corporation tax regime, the objective of which is to tax the chargeable profits of companies carrying on activities in Ireland, be they resident or non-resident, integrated or stand-alone.

156 It must be noted that, under that general Irish regime, according to the description — which is not contested by the parties — set out in recital 71 of the contested decision, corporation tax in Ireland is charged on the profits of companies (section 21(1) of the TCA 97). In addition, Ireland applies a different rate to trading income, non-trading income and capital gains. Section 21 of the TCA 97 sets the general rate of corporation tax at 12.5%. That rate applies to the trading income of companies taxed under the TCA 97, while non-trading income is taxed at a rate of 25% and capital gains are taxed at a rate of 33%. However, capital gains on disposals of certain shareholdings are subject to an exemption.

157 Moreover, as is stated in recital 72 of the contested decision, under section 26 of the TCA 97, resident companies are subject to corporation tax calculated on the basis of their worldwide profits and capital gains, excluding most distributions received from other companies resident in Ireland.

158 Lastly, under section 25 of the TCA 97, the wording of which is set out in recital 73 of the contested decision, a non-resident company is not to be within the charge to corporation tax unless it carries on a trade in Ireland through a branch or agency. If it does so, that company is to be taxed on all of its trading income arising directly or indirectly from the branch or agency and from the property or rights used by or held by or for the branch or agency as well as on capital gains attributable to the branch or agency.

159 Under section 25(1) of the TCA 97, non-resident companies are not to be taxed in Ireland unless they carry on a trade there through a branch or agency; if they do so, they must pay corporation tax on all of their chargeable profits. Section 25(2)(a) of the TCA 97 defines chargeable profits as any trading income arising directly or indirectly through or from the branch or agency, and any income from property or rights used by, or held by or for, the branch or agency.

160 Therefore, although the first part of the first sentence of section 25(1) of the TCA 97 could be understood as establishing a derogation from the normal taxation regime in favour of non-resident companies, the second part of that sentence makes that regime applicable to non-resident companies carrying on a trade in Ireland through a branch, which must pay corporation tax on all of their chargeable profits. Thus, in accordance with that provision, those companies are also subject to the conditions for the application of corporation tax.

161 When seen from that perspective, resident and non-resident companies carrying on a trade in Ireland through a branch are in a comparable situation in the light of the objective pursued by that regime, namely the taxation of chargeable profits. The fact that the latter’s chargeable profits are specifically defined in section 25(2)(a) of the TCA 97 does not establish that section as the reference framework; rather, that provision is the legislative means used for the purpose of applying corporation tax to that category of company. As is apparent from the case-law cited in paragraphs 148 and 149 above, the fact that, pursuant to those legislative means, one category of company is treated differently as compared with other companies does not mean that those two categories of company are not in a comparable situation in the light of the objective pursued by that regime.

162 Therefore, the provisions concerning the chargeable profits of companies that are not resident in Ireland laid down in section 25 of the TCA 97 cannot in themselves constitute a specific regime that is separate from the ordinary rules. That provision in isolation is insufficient for the purpose of consistently applying corporation tax to those non-resident companies.

163 In those circumstances, it is appropriate to consider that the Commission did not err when it concluded that the reference framework in the present instance was the ordinary rules of taxation of corporate profit in Ireland, the intrinsic objective of which was the taxation of profit of all companies subject to tax in that Member State, and, consequently, that that framework included the provisions applicable to non-resident companies laid down in section 25 of the TCA 97.

164 Therefore, the complaints raised by Ireland and ASI and AOE concerning the reference framework defined in the contested decision must be rejected.

165 In view of the reference framework defined in the contested decision, namely the ordinary rules of taxation of corporate profit, which include, in particular, the provisions of section 25 of the TCA 97, it is necessary to analyse the complaints raised by Ireland and ASI and AOE regarding the Commission’s interpretation of those provisions.

(b) The Commission’s assessments concerning the normal taxation of profits under Irish tax law

166 In the contested decision (in particular in recitals 319 to 321 of that decision), as part of its primary line of reasoning, the Commission maintained that the fact that the Irish branches of ASI and AOE were not allocated the profits derived from the Apple Group IP licences held by ASI and AOE meant that the determination of the annual chargeable profits of ASI and AOE in Ireland departed from a reliable approximation of a market-based outcome in line with the arm’s length principle, with the result that the amount that would otherwise have been payable by ASI and AOE as corporation tax in Ireland was reduced.

167 The Commission’s analysis in this regard is based on the consideration, outlined in recitals 244 to 263 of the contested decision, that the application of section 25 of the TCA 97 for the purpose of allocating profits to a branch required the application of a profit allocation method which, under Article 107(1) TFEU, had to be based on the arm’s length principle. In addition, in recital 272 of the contested decision, the Commission referred to the Authorised OECD Approach when it stated that the profits to be allocated to a branch were the profits that that branch would have earned at arm’s length if it had been a separate and independent enterprise engaged in identical or similar activities under identical or similar conditions, taking into account the functions performed, the assets used, and the risks assumed by the company through its branch.

168 Ireland and ASI and AOE contest each element of the reasoning described in paragraphs 166 and 167 above.

169 First, Ireland and ASI and AOE take issue with the Commission’s application of section 25 of the TCA 97 in connection with its primary line of reasoning in so far as it complained, in essence, that the Irish tax authorities had not required all of ASI and AOE’s profits to be allocated to their Irish branches.

170 Secondly, Ireland and ASI and AOE dispute that Article 107 TFEU gives rise to an arm’s length principle as relied on by the Commission in its reasoning and, consequently, argue that no such principle is applicable in Ireland.

171 Thirdly, Ireland and ASI and AOE submit that the Authorised OECD Approach does not apply to Irish tax law. They argue that, in any event, even if it were assumed that the Authorised OECD Approach could be applied in the present instance, the Commission was wrong to conclude, on the basis of that approach, that the profits relating to the Apple Group IP licences held by ASI and AOE should have been allocated to their Irish branches.

172 Therefore, it is necessary to examine, first, the complaints raised by Ireland and ASI and AOE concerning the application of section 25 of the TCA 97, then, the matter of whether the Commission was entitled to rely on an arm’s length principle arising from Article 107 TFEU in its analysis and, lastly, the application in the present instance of the Authorised OECD Approach.

(1) Application of section 25 of the TCA 97 (part of the second plea in law in Case T‑778/16 and of the first plea in law in Case T‑892/16)

173 In the present instance, it is not in dispute that: – ASI and AOE are companies that are incorporated in Ireland but which are not considered to be tax resident in Ireland, as the Commission acknowledged in recital 50 of the contested decision; – section 25 of the TCA 97 contains provisions that apply specifically to non-resident companies under which, where a non-resident company carries on a trade in Ireland through a branch, that company is to be taxed, inter alia, on all of its trading income arising directly or indirectly from the branch; – the non-resident companies ASI and AOE carried on a trade in Ireland through their respective branches.

174 Therefore, it is necessary to analyse whether the Commission was entitled to consider that, under section 25 of the TCA 97, when determining ASI and AOE’s profits in Ireland, the Irish tax authorities should have allocated the Apple Group’s IP licences to the Irish branches of those two companies.

175 Under Irish tax law, and in particular under section 25 of the TCA 97, in the case of non-resident companies carrying on their trade in Ireland through a branch, only the profits derived from trade directly or indirectly attributable to that Irish branch, on the one hand, and all income from property or rights used by, or held by or for, the branch, on the other, are taxable.

176 It is true, as the Commission correctly points out and as Ireland and ASI and AOE acknowledge, that section 25 of the TCA 97 does not lay down any specific method enabling it to be established which profits are directly or indirectly attributable to the Irish branches of non-resident companies and makes no reference to the arm’s length principle for the purposes of that attribution.

177 Nevertheless, it is clear that section 25 of the TCA 97 relates only to the profits derived from trade that the Irish branches have carried on themselves and excludes profits derived from trade carried on by other parts of the non-resident company in question.

178 Ireland and ASI and AOE submit that that taxation mechanism precludes, in principle, an approach in which the entirety of the non-resident company’s profits are examined and, to the extent that those profits cannot be allocated to other parts of that company, are allocated by default to the Irish branches (an ‘exclusion’ approach).

179 In that regard, Ireland and ASI and AOE rely on the opinion of an expert in Irish law, the relevance of which is not contested as such by the Commission. According to that opinion, when determining the chargeable profits of non-resident companies carrying on a trade in Ireland through their Irish branches, the relevant analysis for the application of section 25 of the TCA 97 must cover the actual activities of those Irish branches and the value of the activities actually carried out by the branches themselves. That opinion is based, inter alia, on the judgment of the High Court, Ireland, in S. Murphy (Inspector of Taxes) v. Dataproducts (Dub.) Ltd. [1988] I. R. 10 note 4507 (‘the judgment in Dataproducts’). The judgment in Dataproducts was also relied on as precedent both in support of the arguments of Ireland and Apple Inc. during the administrative procedure and in support of the arguments of Ireland and ASI and AOE in the present dispute.

180 It is apparent from the judgment in Dataproducts that the profits derived from property that is controlled by a non-resident company cannot be regarded as such as being profits attributable to the Irish branch of that company even if that property has been made available to that branch.

181 Similarly, it is apparent from that judgment that property belonging to a company that is not resident in Ireland and controlled by the executives of that company, who are also not resident in Ireland, cannot be allocated to that company’s Irish branch, even if that property is made available to that branch. In so far as the staff and directors of the Irish branch did not have control of the property in question, the income from that property could not be attributed to that branch for the purposes of taxation in Ireland. That remains the case even where it is only the Irish branch that has employees and physical property and the non-resident company has no physical property, employees or business activities other than those of the Irish branch. The non-resident company with no employees was considered to control that property through its management bodies.

182 Therefore, it is clear from the judgment in Dataproducts that the question that is relevant when determining the profits of the branch is whether the Irish branch has control of that property.

183 In the present instance, as has been stated in paragraphs 37 to 40 above, in its primary line of reasoning the Commission contended, in essence, that where the profits from trading activity were derived from the Apple Group’s IP, the licences for which were held by ASI and AOE, those profits should have been allocated to the Irish branches in so far as those companies had no physical presence or employees outside those branches and, therefore, were unable to control those licences.

184 In the light of the judgment in Dataproducts, when determining which profits are attributable to the Irish branch of a company that is not tax resident for the purposes of section 25 of the TCA 97, the property held by that company cannot be allocated to the Irish branch if it has not been established that that property is actually controlled by that branch. In addition, it is apparent from that judgment that the fact that the non-resident company has neither employees nor any physical presence outside the Irish branch is not in itself a decisive factor preventing the conclusion that it is that company which controls that property.

185 If the Apple Group IP licences held by ASI and AOE were not controlled by the Irish branches, it would be wrong to allocate all of the income generated by the companies arising from those licences to those branches under section 25 of the TCA 97. Only the profit derived from the trading activity of the Irish branches, including that carried on on the basis of the Apple Group IP licences held by ASI and AOE, should be regarded as relating to the activities of those branches.

186 It follows from the foregoing that, when it considered that the Apple Group’s IP licences should have been allocated to the Irish branches in so far as ASI and AOE were regarded as having neither the employees nor the physical presence to manage them, the Commission allocated profits using an ‘exclusion’ approach, which is inconsistent with section 25 of the TCA 97. In its primary line of reasoning, the Commission did not attempt to show that the Irish branches of ASI and AOE had in fact controlled the Apple Group’s IP licences when it concluded that the Irish tax authorities should have allocated the Apple Group’s IP licences to those branches and that, consequently, under section 25 of the TCA 97, all of ASI and AOE’s trading income should have been regarded as arising from the activities of those branches.

187 In those circumstances, it should be held that, as Ireland and ASI and AOE rightly argue in their complaints in the second plea in law in Case T‑778/16 and in the first plea in law in Case T‑892/16, the Commission erred, in its primary line of reasoning, in its assessment of the provisions of Irish tax law relating to the taxation of the profits of companies that are not resident in Ireland but which carry on a trade there through a branch.

188 As the Commission’s primary line of reasoning is based on a series of assessments concerning the normal taxation of profits under Irish tax law, it is necessary to go on to examine the arguments raised by Ireland and ASI and AOE regarding the other inherent aspects of those assessments.

(2) The arm’s length principle (part of the first and third pleas in law in Case T‑778/16 and of the first and second pleas in law in Case T‑892/16)

189 In essence, Ireland and ASI and AOE, supported in that regard by the Grand Duchy of Luxembourg, submit that the arm’s length principle is not part of Irish tax law and that no freestanding obligation to apply that principle emerges from Article 107 TFEU, any other provision of EU law, or the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416). Ireland submits that, in any event, the Commission itself applied the principle inconsistently in so far as it failed to take into consideration the economic reality, structure and particular features of the Apple Group.

190 The Commission, supported in that regard by the Republic of Poland and the EFTA Surveillance Authority, disputes those arguments and contends, in essence, that the method used to determine the chargeable profits under section 25 of the TCA 97 must produce a reliable approximation of a market-based outcome and, therefore, an approximation based on the arm’s length principle, which would have been applied by the Irish tax authorities in the past when applying double taxation treaties.

191 It is therefore necessary to examine, in the first place, whether the Commission was entitled to rely on the arm’s length principle in order to determine whether there was a selective advantage and, if so, in the second place, whether the Commission correctly applied that principle in its primary line of reasoning.

(i) Whether the Commission was entitled to rely on the arm’s length principle in order to determine whether there was a selective advantage

192 First, it should be borne in mind that, in recitals 244 to 248 of the contested decision, the Commission maintained that, in so far as section 25 of the TCA 97 did not state how the chargeable profits of an Irish branch were to be determined, that provision had to be applied by using a profit allocation method.

193 Secondly, in recital 249 of the contested decision, the Commission stated that, according to the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), a reduction in the taxable base that resulted from a tax measure that enabled a taxpayer to employ transfer prices in intra-group transactions that did not resemble prices which would have been charged in conditions of free competition between independent undertakings negotiating under comparable circumstances at arm’s length conferred a selective advantage on that taxpayer for the purposes of Article 107(1) TFEU.

194 In addition, in recitals 251 and 252 of the contested decision, the Commission specified that the purpose of the arm’s length principle was to ensure that transactions between integrated group companies are treated for tax purposes by reference to the amount of profit that would have arisen if the same transactions had been carried out by non-integrated stand-alone companies. Otherwise, integrated group companies would benefit from favourable treatment under the ordinary rules of taxation. According to the Commission, in the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), the Court of Justice endorsed the arm’s length principle as a benchmark for establishing whether an integrated group company received a selective advantage for the purposes of Article 107(1) TFEU as a result of a tax measure that determined its transfer pricing and thus its taxable base.

195 Thirdly, in recital 255 of the contested decision, the Commission stated that the same principle applied to the internal dealings of different parts of a single integrated company, such as a branch that transacts with other parts of the company to which it belongs. According to the Commission, to ensure that a profit allocation method endorsed by a tax ruling does not confer a selective advantage on a non-resident company operating through a branch in Ireland, that method must generate a chargeable profit that is a reliable approximation of a market-based outcome in line with the arm’s length principle. In recital 256 of the contested decision, it added that it applied the arm’s length principle not as a basis for ‘imposing’ taxes that would otherwise not be due under the reference framework, but as a benchmark to verify whether the chargeable profit of a branch was determined in a manner that ensured that it was not granted favourable treatment as compared with non-integrated companies whose chargeable profits reflected prices negotiated at arm’s length on the market.

196 Fourthly, with regard to the legal basis of that principle, the Commission stated in recital 255 of the contested decision that it did not directly apply Article 7(2) or Article 9 of the OECD Model Tax Convention or the guidance provided by the OECD on profit allocation or transfer pricing, which were non-binding but which nonetheless constituted useful guidance on how to ensure that transfer pricing and profit allocation arrangements produce outcomes in line with market conditions.

197 In addition, in recital 257 of the contested decision, the Commission stated that the arm’s length principle that it applied was derived from Article 107(1) TFEU, as interpreted by the Court of Justice, which was binding on the Member States and from the scope of which national tax rules were not excluded. It noted that that principle therefore applied regardless of whether the Member State in question had incorporated that principle in its national legal system.

198 The Commission concluded from this, in recitals 258 and 259 of the contested decision, that, if it could be shown that the profit allocation methods endorsed in the contested tax rulings resulted in a chargeable profit for ASI and AOE in Ireland that departed from a reliable approximation of a market-based outcome in line with the arm’s length principle, those rulings had to be considered to confer a selective advantage, in so far as they had led to a lowering of the amount of corporation tax payable in Ireland as compared with non-integrated companies whose taxable base was determined by the profits they generated under market conditions.

199 It should be emphasised at the outset that, as is apparent from, inter alia, recitals 258 and 259 of the contested decision, referred to in paragraph 198 above, the Commission relied on the arm’s length principle in its analysis of whether the contested tax rulings gave rise to a selective advantage, in particular in its primary line of reasoning.

200 In addition, it should be borne in mind, as has been stated in paragraph 163 above, that the reference framework that was relevant for the analysis of the advantage condition in the present instance was the ordinary rules of taxation of corporate profit in Ireland, the intrinsic objective of which was the taxation of profit of all companies subject to tax in that Member State, and, consequently, that that reference framework included the provisions applicable to non-resident companies laid down in section 25 of the TCA 97.

201 It is therefore necessary to examine whether the Commission was entitled to use the arm’s length principle to analyse in, inter alia, its primary line of reasoning whether the allocation of profits to the Irish branches of ASI and AOE, as endorsed in the contested tax rulings, had conferred a selective advantage on those companies.

202 In the case of tax measures, the very existence of an advantage may be established only when compared with ‘normal’ taxation (judgment of 6 September 2006, Portugal v Commission, C‑88/03, EU:C:2006:511, paragraph 56). Consequently, such a measure confers an economic advantage on its recipient where it mitigates the burdens normally included in the budget of an undertaking and, as a result, without being a subsidy in the strict meaning of the word, is similar in character and has the same effect (judgment of 9 October 2014, Ministerio de Defensa and Navantia, C‑522/13, EU:C:2014:2262, paragraph 22).

203 Accordingly, in order to determine whether there is a tax advantage, it is necessary to compare the recipient’s situation resulting from the application of the measure in question with its situation had the measure in question not been adopted (see, to that effect, judgment of 26 April 2018, Cellnex Telecom and Telecom Castilla-La Mancha v Commission, C‑91/17 P and C‑92/17 P, not published, EU:C:2018:284, paragraph 114) and had the normal rules of taxation been applied.

204 In the first place, it should be borne in mind that the dispute in the present instance centres around the taxation of companies that are not tax resident in Ireland and which carry on a trade in that State through their Irish branches. The issue therefore lies in determining what profits must be allocated to those branches for corporation tax purposes as part of ‘normal’ taxation, taking into account the normal rules of taxation applicable in the present instance, as referred to in paragraph 200 above, which include the provisions that apply to non-resident companies set out in section 25 of the TCA 97.

205 Therefore, the question that is relevant in the present instance is not linked to the prices of intra-group transactions within a group of undertakings, as was the situation in the case that gave rise to the judgment of 24 September 2019, Netherlands and Others v Commission (T‑760/15 and T‑636/16, EU:T:2019:669).

206 It is true that the allocation of profits to a branch of a company may lend itself to the application by analogy of the principles applicable to the prices of intra-group transactions within a group of undertakings. In the same way as the prices of intra-group transactions between companies integrated in a single group of undertakings are not determined under market conditions, the allocation of profits to a branch of a single company is not carried out under market conditions.

207 However, in order for those principles to be applied by analogy, it must be clear from national tax law that the profits derived from the activities of the branches of non-resident undertakings should be taxed as if they resulted from the economic activities of stand-alone undertakings operating under market conditions.

208 In that regard, in the second place, it should be borne in mind that, as has been stated in paragraph 161 above, from the perspective of the conditions for the application of the corporation tax regime in Ireland, under section 25 of the TCA 97, both resident companies, on the one hand, and non-resident companies carrying on a trade in Ireland through a branch, on the other, are in a comparable situation in the light of the objective pursued by that regime, namely taxing the chargeable profits of those companies, be they resident or non-resident.

209 In addition, as has been noted in paragraph 179 above, when determining the chargeable profits of non-resident companies carrying on a trade in Ireland through their Irish branches, the relevant analysis for the application of section 25 of the TCA 97 must cover the actual activities of those Irish branches and the value of the activities actually carried out by the branches themselves.

210 Moreover, it should be noted that, when questioned explicitly on this point in a written question put by the Court and orally at the hearing, Ireland confirmed that, for the purposes of the application of section 25 of the TCA 97, as referred to in paragraph 209 above, the value of the activities actually carried out by the branches is to be determined according to the value of that type of activity on the market.

211 Accordingly, under Irish tax law, the p