Avi-Yonah, Reuven S. and Mazzoni, Gianluca, Apple State Aid Ruling: A Wrong Way to Enforce the Benefits Principle? (October 27, 2016). Available for download at SSRN: https://ssrn.com/abstract=2859996

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