Apple Chief Executive Tim Cook is at least half-right when he describes as “political” the European Commission’s demand that Ireland should claw back €13 billion in forgone taxes from the American computer giant. The decision, he told Irish radio, had no basis in law or the facts of the case.
Margrethe Vestager, the European commissioner for competition, denies that the decision is politically motivated. The European Court of Justice, she claims, is not interested in politics, just the facts.
Yet there is no denying that the Apple case is profoundly political in its consequences and has now set in train a very political battle for the backing of Europe’s finance ministers. Vestager has put into play — in the most high-profile way possible — the question of who runs Europe.
Not everyone perceives the struggle in those terms. The Irish government and its supporters dispute the Commission’s move into investigating tax rulings, the agreements made between a national tax authority and an individual company (which have previously resulted in adverse judgments against Starbucks in the Netherlands and Fiat in Luxembourg). They would argue that Vestager has raised the question of who runs Ireland.
Margrethe Vestager has put into play the question of who runs Europe | Frederick Florin/AFP via Getty Images
And the United States Treasury Department has set out in a white paper its objections to Vestager’s recent tax investigations, complaining that the European Commission is laying claim to money that might be owed to the U.S. tax authorities. It implies that the EU is interfering with who runs the U.S.
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The EU-U.S. tensions are, however, a distracting decoration. Although it is tempting to see Vestager’s decision as continuing a tradition of European competition commissioners trying to cut American giants down to size (Mario Monti blocked GE’s takeover of Honeywell; Monti, Neelie Kroes and Joaquín Almunia pursued antitrust cases against Microsoft), that would be to ignore other nuances in the Apple conflict.
First of all, Vestager’s target is the national governments of the EU. Her message is that tax competition cannot and should not mean a complete free-for-all. That is the same message she previously delivered by way of similar state aid rulings to the Netherlands, Luxembourg and Belgium — but the sums involved in the Apple case are so great as to make other countries sit up and take notice. More than previous cases, this one raises the question of how much tax income other countries might be missing out on because of Ireland’s tax ruling. And her message is that if the EU does not stand united, the only beneficiaries will be the multinationals playing fiscal arbitrage.
The message is not in itself a new one. The EU’s debate about what constitutes fair or unfair tax competition has flared at various moments in the past — in 1998-1999 over Ireland’s corporation tax and in 2009 over Slovakia’s tax rates for car companies, for instance.
What is new, however, is the method chosen by the Commission to push its argument — exercising its powers to police state aid. The idea has been kicking around for some time. Monti, who had been single market commissioner before taking the competition portfolio, argued that unfair tax competition and the threat it posed to the single market had to be countered by use of state aid powers.
Vestager is more willing than her predecessors to test the extent of the Commission’s powers.
But back then there was no willing alliance between the commissioners for the single market and competition. Those posts were held by a succession of people who were skeptical about giving the EU more power over member countries and who were by nationality protective of low-tax arrangements: Frits Bolkestein from the Netherlands, Charlie McCreevy from Ireland and Kroes from the Netherlands. And the Spaniard Almunia, who held the competition portfolio from 2010-2014, was no innovator.
In addition, Vestager is more willing than her predecessors to test the extent of the Commission’s powers, though her concerted use of state-aid inquiries looks likely to be challenged by Ireland and Apple in the European Court of Justice. That is not the only fight-back she must face down: U.S. Treasury Secretary Jack Lew wrote to Vestager earlier this year suggesting that her attack on tax rulings puts at risk the existing cooperation in international fora — in the G20 and the Organisation for Economic Cooperation and Development. Apple, too, has accused the Commission of trying to “upend the international tax system.”
What is significant about that line of challenge is that it seeks to appeal to EU finance ministers, who retain the prerogative to negotiate on tax issues in international fora. The Commission’s powers over taxation are much more circumscribed than on competition. The U.S. government is hoping that a combination of the finance ministers and Jean-Claude Juncker, the Commission president, might rein in the meddlesome competition commissioner.
European Commission President Jean-Claude Juncker | Frederick Florin/AFP via Getty Images
Vestager stands accused of threatening a developing consensus that governments must work together to combat tax evasion. That trend was accelerated by the financial crisis, which put public revenues under severe strain, by the crackdown on money-laundering and organized crime which curtailed the room for secrecy, and by the LuxLeaks and Panama Papers revelations. The finance ministers must decide whether Vestager’s inquiries are part of that trend or run counter to it.
It’s clear where Michael Noonan, Ireland’s finance minister, stands, but it is hard at this stage to know how the various other finance ministers might react to the information being brought to light by the Commission’s inquiries.
Those who defend Ireland’s right to style itself as a low-tax economy are quick to point out that Vestager hails from Denmark, a high-tax economy. But they might also pay attention to another supposed characteristic of the Danes — a Lutheran-inspired fondness for openness and transparency.
It’s a significant feature of the state aid inquiry that Vestager gets to make public at least some of the terms of tax rulings that were previously secret between national authorities and the multinational corporations.
In doing so, the Commission may widen divisions between the finance ministers — exposing both to the ministers and to their electorates the tax revenue that is effectively not being collected. Sven Giegold, a leading German Green member of the European Parliament’s economic and monetary affairs committee, was quick to express mischievous surprise that Wolfgang Schäuble, Germany’s finance minister, was not more concerned about the loss of revenue. Until his recent wobble over Spain and Portugal, Schäuble had always taken a hard line in demanding that other national governments should reduce their budget deficits.
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Publishing details from the tax rulings should also help Vestager in her struggle to win the backing of European consumers. Her revelations that in 2014 the company was paying only €50 of tax per million euro of profit, and that Apple International in Ireland, through which the company’s revenue was channeled, had no premises and no employees in Ireland, might not cut much ice with tax lawyers and accountants, but they will play well in the court of European public opinion.
Apple may be a darling of consumer electronics, but it does not follow that consumers will give it a free fiscal pass. Nobody likes paying taxes. What they like even less is having to pay taxes while watching others escape them.
Vestager has couched her demand that Ireland must recover the state aid as one of fairness: Taxes must be paid and one company cannot be given special treatment. The claim to be an arbiter of fairness is a very important one. The underlying message is that the Irish government has failed in its duty to be fair — a duty that it owed not just to its own citizens but to the other EU member countries.
The assertion made by Wednesday’s Commission decision is that, if an individual country can’t stand up to the likes of Apple, Google, Microsoft and — lest José Manuel Barroso is forgotten — Goldman Sachs, the EU will. If not Margrethe Vestager, then who? If not the European Union, then what? Those are profoundly political questions.
[Source:-Politico]
