Apple Clocks Victory in Tax Fight But More EU Battles Loom

Apple Inc. clinched an important win in a top European Union court Wednesday, but it’s only the first battle in an onslaught of other regulatory threats facing the iPhone maker in Europe, including antitrust probes and legislation that could force changes to the way it operates in the bloc.

The Cupertino, California-based company won the first round in its challenge against a 2016 decision by the European Commission to slap a 13 billion-euro ($14.9 billion) Irish back-tax bill on the iPhone maker. The commission had argued Ireland gave Apple an illegal tax advantage.

Apple said it was “pleased” with a ruling by the EU General Court siding with the company, while the commission said it would consider its next steps after studying the Luxembourg-based court’s judgment, which can be appealed.

Apple rose 1.3% to $393.34 at 9:40 a.m. in New York Wednesday. The shares have gained 34% so far this year.

In the event of an appeal, Apple will have to continue aggressively fighting the tax case just as the commission, the bloc’s executive body and competition watchdog, recently opened multiple antitrust probes into the tech giant’s conduct. A slew of other regulatory initiatives also risk denting the company’s operations in Europe.

In June, EU antitrust chief Margrethe Vestager and her team said they were concerned that Apple harms competitors by requiring apps published in its App Store to use the company’s in-house payment system, which takes a cut of as much as 30% of subscriptions and in-app purchases. Fees from App Store transactions are estimated to be the largest contributor to Apple’s Services revenue, a business the company is trying hard to expand.

European officials are also scrutinizing Apple’s conduct with its Apple Pay service, including whether the firm unfairly blocks other providers from using contactless functionality on iPhones. Banks and other payments providers have griped the company gives its Apple Pay service an unfair advantage by limiting access to that technology.

Apple says it embraces competition and merely wants customers to have access to the best app or service of their choice, in a safe and secure environment. But the iPhone maker will have to defend its position to the EU’s antitrust chief amid the already-tense backdrop of the tax case. When Vestager issued the tax bill in 2016, it led Chief Executive Officer Tim Cook to blast the move as “total political crap.”

As antitrust chief, Vestager has taken a tough stance against tech giants in recent years. Now in an expanded role as the EU’s tech czar, her approach shows no signs of abating. Along with the antitrust investigations, her team is planning new rules for so-called gatekeeper platforms and a tax on digital revenues -- both of which could again hit Apple.

Internet platforms, from Apple to Alphabet Inc. and Inc., have attracted numerous complaints over an alleged failure to play fair when they host smaller companies and compete directly with them. The measures for gatekeeper platforms, due to be unveiled by year-end, aim to tackle those issues where competition law can’t. They will also build on new regulations that entered into force this month, which oblige platforms to treat business customers fairly and provide more transparency around search rankings.

Meanwhile, Apple is pushing back against another potential EU initiative that would standardize chargers for all types of smartphones and devices, in an effort by the bloc to reduce electronic waste.

Apple says such measures could hamper innovation of sleeker and smaller gadgets, while having the perverse effect of creating more waste. Being forced to use a common standard charger could also turn a bespoke product that Apple sells at high prices into a commodity, cutting into its profit.

Even on privacy, an area where the iPhone maker prides itself to be a leader compared to other Silicon Valley giants, Apple is also starting to face heat in Europe.

A man who worked on the company’s Siri transcription project in Ireland complained to European privacy authorities in May over the “massive violation of the privacy of millions of citizens.” Apple had previously announced it would make changes to Siri following reports by Bloomberg that the company, along with Amazon and Google, relied on workers to listen to audio clippings.

Since 2018, European privacy watchdogs have had the power to fine firms as much as 4% of annual revenue if they are found to breach the bloc’s strict data protection rules.

©2020 Bloomberg L.P.

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