In a highly anticipated decision, the European Union's second highest court has ruled that a tax deal struck between the U.S. tech giant Apple and Irish tax authorities almost two decades ago did not violate EU state aid rules.

In a decision handed down on Wednesday, the Luxembourg-based EU General Court also quashed the 2016 state aid order that set the years long legal fight between the U.S. tech company and European competition authorities in motion. The decision means that Apple will not have to pay €13.1 billion – with €1.2 billion in interest – in back taxes to the Irish tax authorities, as the Commission ordered it to in 2016.

The European Commission did not successfully demonstrate that the tax agreement between Apple and Ireland amounted to a form of state aid that distorted competition in the EU internal market, the EU General Court ruled.

"The Commission was wrong to declare that ASI and AOE had been granted a selective economic advantage and, by extension, state aid," the Court said in a statement, referring to Apple's two Irish subsidiaries by their acronyms.

The legal challenge centered around two 1991 and 2007 tax rulings between the U.S. tech giant and Irish tax authorities that allowed the iPhone maker to attribute profits from its two Irish subsidiaries – Apple Sales International and Apple Operations Europe – to an untaxed head office.  

But according to EU competition chief Margrethe Vestager this tax setup violated EU state aid rules and allowed Apple to pay significantly less tax than other companies. In a sweeping 2016 state aid order, the Danish official instructed Irish authorities to claw back €1.3 billion from Apple in back taxes. The state aid decision, which was swiftly appealed by Apple before the EU General Court, followed similar, high-profile tax probes into U.S. multinationals like Starbucks and Amazon.

"This is clearly a very significant loss for the European Commission," said Howard Liebman, of counsel at Jones Day's Tax Practice in Brussels. The judgement is likely to impact how the Commission moves forward with its tax probes, he added. "I think they're going to take a step back with regard to attacking tax rulings under state aid rules," he said. 

In a statement, Apple's Europe director of communications, Adam Howorth, welcomed the court's judgment.

"This case was not about how much tax we pay, but where we are required to pay it," he said, describing Apple as the world's largest taxpayer. "Changes in how a multinational company's income tax payments are split between different countries require a global solution, and Apple encourages this work to continue."  

Competition chief Vestager said in a statement that authorities would study the judgment and reflect on next steps.

"The Commission will continue to look at aggressive tax planning measures under EU state aid rules to assess whether they result in illegal state aid," she said.

The Commission is likely to appeal the case to the Court of Justice, the bloc's highest court. 

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