Europe has lost Apple battle, but the war is far from over

Europe Letter: Intense spotlight on Ireland’s tax regime won’t go away anytime soon

Minister for Finance Paschal Donohoe: In his role as Eurogroup president, he can expect to be grilled on Irish tax policy. Photograph: Alan Betson

Minister for Finance Paschal Donohoe: In his role as Eurogroup president, he can expect to be grilled on Irish tax policy. Photograph: Alan Betson

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The European Commission may have lost this battle, but the war is just beginning. That was the mood in Brussels after Ireland’s victory in the European General Court, in which the Government successfully rejected an attempt to force it to collect billions in back taxes from Apple.

The court found the commission had not shown sufficient evidence that the tech giant received a sweetheart deal. This was a blow to one tactic the commission had been using to challenge what it sees as unfair taxation arrangements: the argument that they breach state aid rules that aim to ensure fair competition between member states.

But the commission will still keep trying to curb what it calls “aggressive taxation policies”. It will just try to crack the nut differently.

It’s important to understand that the commission is under significant pressure to do this. The move is popular among member states, and among many European citizens too. To the Irish Government, a competitive tax rate and friendly attitude towards multinationals is a treasured policy that helped transform Ireland from an economic backwater into one of the world’s richest countries. And Dublin denies that it’s all about the tax rate too, of course, arguing that multinationals like the Irish workforce, that it has closed various tax loopholes in recent years, and that it favours international reform as long as everyone is on board.

People associate Ireland with a very favourable taxation regime. Some people even call it a tax haven

But to many voters and politicians on the continent, Irish policy – particularly towards the internet giants – does nothing less than cheat them out of tax revenue that is rightly theirs.

Financial straits

Rome partly blames its current financial straits on friendly tax jurisdictions allowing digital multinationals to declare profits from Italy to their own revenue services, and at bargain-basement rates, no less. When it comes to tax matters, Ireland and the Benelux region have the same notorious associations in some circles as the Cayman Islands or Jersey. “People associate Ireland with a very favourable taxation regime. Some people even call it a tax haven,” said one source in a Mediterranean finance ministry. “That can create some animosity.”

The Dutch prime minister Mark Rutte inadvertently drew attention and ire towards the taxation issue through his government’s brusque and vehement objections to a plan for a generous financial aid package to help the EU’s worst-hit countries weather the economic crisis caused by the Covid-19 pandemic. 

The Hague’s arguments were grounded in implications that the southern states only need assistance because they are managing their finances irresponsibly. This provoked a bitter response from the Mediterranean capitals and open challenges to what they see as Dutch poaching of their tax revenues. Italian press reports called Ireland, Luxembourg and the Netherlands “European champions” in tax evasion, and accused Ireland of being the primary offender in helping to siphon off a missing €7 billion from Italian revenues.

Momentum for tax reform has also been driven by the United States’ withdrawal from international talks on digital taxation shepherded by the Organisation for Economic Co-operation and Development (OECD). 

The Republic had used these talks as an argument to stall any progress towards a solely EU agreement. If the EU imposes a common digital tax on its own, in Dublin’s view, the multinationals will simply relocate, probably to the US, gutting Ireland’s yearly tax take.

Delayed

This had worked. France delayed levying its own digital tax while the talks were going on. But within hours of their collapse, the French finance minister was declaring their national levy would be enforced. New impetus was instantly injected into a drive for an EU tax agreement. France and Germany presented a united front within days and held a joint press conference in which their finance ministers talked up digital taxation and an EU minimum corporation tax. The commission is now due to present plans for a digital levy by next spring.

The election of Minister for Finance Paschal Donohoe as president of the Eurogroup reflects that Ireland will be far from alone in its resistance to such plans. But it will raise the prominence of Ireland in these debates, and the focus on Irish policy too. Continental journalists will have regular opportunities to grill Donohoe on Irish tax policy, and undoubtedly will.

There was a feeling that Ireland was getting away with something or doing something that it shouldn’t be

Within hours of the Apple verdict, two commissioners were unveiling plans for wide-ranging taxation reforms, focused on simplifying procedures, enforcing compliance and increasing data-sharing across Europe. In the mix is a proposal to bypass the veto that member states wield on tax matters through an unused article of EU treaty law that only requires qualified majority vote, not unanimity, in cases that concern national policies that are distorting the single market.

The Irish former secretary general of the European Commission, Catherine Day, reflected on the ruling in a panel discussion organised by European Movement Ireland.

“There was a feeling that Ireland was getting away with something or doing something that it shouldn’t be, so if that has been hit on the head that does somewhat strengthen Ireland’s hand in defending our level of corporate tax,” Day said. 

“But it doesn’t take away the pressure,” she added. “It’s going to be an ongoing battlefield.”

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