Europe’s second highest court is hearing an appeal relating to a 2016 ruling which found that Ireland had offered Apple preferential tax treatment, with two ‘sweetheart’ agreements which artificially lowered the amount of tax the company paid over a period of two decades.

Apple has defended its tax arrangements robustly and said the tax bill ‘defies reality and common sense’.

The European Commission argued that the Irish government allowed Apple to attribute nearly all its EU sales earnings to an Irish head office that existed only on paper, thereby avoiding paying tax on EU revenues.

Both the Irish government and Apple have disputed the decision that this amounted to illegal state aid.

At the first day of the court hearing, Apple's lawyer Daniel Beard said the Commission’s view was that all of Apple's profits from all of its sales outside the Americas must be attributed to two branches in Ireland.

He said the fact the iPhone, iPad, App Store, other Apple products and services, and key intellectual property rights were developed in the US, and not in Ireland, showed the flaws in the Commission's case.

Beard said: ‘The branches' activities did not involve creating, developing or managing those rights. Based on the facts of this case, the primary line defies reality and common sense.

‘The activities of these two branches in Ireland simply could not be responsible for generating almost all of Apple's profits outside the Americas.’

Apple accused the Commission of using its powers to alter state aid ‘to retrofit changes to national law’, and said its actions had created legal uncertainty for businesses.

The EU executive dismissed the arguments, saying it was not seeking to police international tax laws and accused Ireland of not having done its homework when assessing Apple’s taxes.

The Commission lawyer said: ‘They simply accepted an arbitrary method proposed by the Apple Ireland subsidiaries. That in itself gives rise to a presumption of a special deal, exceptionally advantageous treatment. It is clear that the tax authorities made no assessment in 1991.’

For his part, Beard dismissed criticism of the 0.005% tax rate paid by Apple’s main Irish unit in 2014, which was cited by the Commission in its decision. He said the regulator was seeking ‘headlines by quoting tiny numbers’.

The court was told that Apple was the largest taxpayer worldwide, paying an average global tax rate of 26%. The company said it was paying about €20bn in US taxes on the same profits that the Commission said should have been taxed in Ireland.

There will be further representations from the EU executive on the second day of the hearing. While the issue is in dispute, the funds, which now total €14.3bn after interest, are being held in an escrow account.

The court case is expected to end this week, but the court will not release its judgment for some months. The losing party is likely to appeal to the EU’s highest court, the European Court of Justice, meaning a final judgment could take several years.

Pat Sweet