EU decision on Apple: Are we defending the indefensible?

In the absence of standardisation of rates or tax bases, the state aids inquiry is a clumsy, blunt mechanism

 

This is the reality of globalisation: companies who manufacture in China and store mega-profits in tax-light states like Ireland. Who play states off against each other to lighten tax bills, and who are headquartered in virtual space. Beyond offshore. No flag, no liability. No obligation, unlike neanderthals still tethered to nation states, to help fund state services .

In eloquently defending the EU Commission’s €13 billion ruling against Apple, Competition Commissioner Margrethe Vestager, has been arguing rightly that making multinationals pay their fair share of tax is one of the challenges of the age, and an essential function of the commission’s competition remit.

States retain the right to set their own tax rates but are not entitled to undermine the single market by favouring individual companies with private deals.

In the absence of standardisation of rates or tax bases, however, the state aids inquiry is a clumsy, blunt mechanism.

It relies on showing that there was a sweetheart deal – while there is no doubt there was a deal between Revenue and Apple, did the Commission also show that the rationale applied to that was unique and different to that used for other companies in similar circumstances?

Ireland’s defence that it applied the same principles to Apple as others may be a good legal point, and central to an appeal, but it is also a politically embarrassing admission that the State’s policy of accommodating multinationals meant it was systematically complicit in their tax reduction strategies.

As Nobel Prize economist Prof Joseph Stiglitz argued yesterday, “the fact is that you were encouraging tax avoidance, you knew it... That’s the kind of activity that has to be stopped.”

Which is why there is little sympathy around Europe for Ireland’s predicament. Or with that of the US whose protests are not to do with sympathy for Apple but exasperation at its own failure to reform its tax system so that it could levy the company’s $200 billion offshore “rainy day fund”. And, when and if they do repatriate them, they know the tax authorities will have to deduct payments made to Ireland from taxes due.

There is now broad OECD-wide agreement on the principle that tax should be levied where profits are earned – Ireland has admitted as much in revising its own tax code, curbing the scope for the use of virtual non-state companies and abolishing the “Double Irish” practice. That reality means that in practice any appeal will also ironically involve an implicit repudiation by the State of the deal it made with Apple.

A new political complication has also been added with the Commission’s clarification that the Government would not be legally bound to spend the €13 billion reducing the national debt. The discretion the Government now enjoys is certain to increase political demands for spending it on social programmes like housing and healthcare.

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