The European Commission, Apple and Ireland: the view from the Emerald Isle
A remarkable degree of consensus has emerged in the “Brussels Bubble” regarding the recent Commission decision against Ireland’s alleged tax (or rather non-tax) agreements with Apple. The issues of tax fairness and equality – as highlighted in recent years by Wikileaks and the subsequent Panama Papers – have strengthened the hand of the EU in seeking to ensure that all multi-national companies do not benefit unduly from gaps in international tax laws. This is a policy supported by the vast majority of European citizens.
However, the ferocity of the response from Dublin regarding the recent Commission decision highlights that there is another side to this debate which must be considered. For a small member state such as Ireland (perhaps the most open economy in Europe) the Commission decision is symptomatic of an EU bureaucracy that is steadily encroaching on areas of national competence.
The use of state-aid policy to retrospectively challenge national taxation policies is not how the EU usually does business. Nor (as recent revelations from Irish policymakers highlight) can the Commission decision be divorced from the reality of Brussels decade’s long campaign to force Ireland to increase its business taxes.
From Dublin, the recent decision highlights the increasing ability of larger member states (generally high tax, high social spending economies) to impose their priorities on smaller, more flexible economies. There are many reasons why Ireland was able to return to growth so successfully after the 2010-13 bailout.
Having an economy characterised by inflexible labour laws; an investment climate restricted by high business taxes and poor labour mobility are not among them. Yet, these are exactly the characteristics of some of the member states now seeking to impose higher taxes in Ireland.
There is a much wider context to be considered regarding the Apple decision. In particular, three key points are relevant:
- Everybody – in the EU and Ireland – believes that companies, both large and small, should pay a fair rate of taxation. What is required is a global solution that includes the problematic issue of reforming the US tax code. Taxing global companies is not like selling cookies at the weekend market. Global consensus is required for meaningful global action. Through its recent actions the Commission have undermined the valuable work being undertaken by the Organisation for Economic Co-operation and Development (OECD) through its Action Plan on base erosion and profit shifting.
- Taxation, including corporate taxation, remains a national competence in the EU. However, the concept of harmonising corporate tax rates has been an objective of the Commission (and some member states) since the 1960s. Whereas smaller member states focus on flexibility, larger states tend to focus on scale as a competitive advantage. The feeling in Ireland is that by cleverly merging the issue of tax fairness/evasion with that of corporate tax harmonisation (through initially proposing a relatively harmless consolidated tax base) the Commission is attempting to finally achieve its long term objective. Let’s be honest, the Commission’s case is not about how much tax Apple pays, it’s part of a longer term political game concerning which (larger) government gets a bigger share of the cash.
- The centralising tendencies of the Commission (and some larger member states) spell economic disaster for many of the EU’s geographically peripheral members. The continental economic model of very high taxation (both personal and business) is not a model that is desirable for more Anglo-Saxon influenced economies like Ireland and the Baltic states. Italy, Germany and France all choose to have headline corporation tax rates of 29%-33%. In Ireland the long established rate is 12.5% and the average for the Baltics is under 17%. Corporate tax competition at a national level is vital for a healthy EU economy. The use of state aid rules to retrospectively over-ride national vetoes will reduce investment in the EU (especially in more open, peripheral economies lacking large capital bases) and reduce the attractiveness of the EU as global investment location. Perhaps Commission officials should talk to Airbus and Volkswagen to find out about the importance of state level incentives in Alabama and Tennessee respectively.
So what solutions can the centre-right in Ireland offer to these wider issues?
- First, we should restate our commitment to real tax fairness. That is in redesigning the global tax system to ensure that all companies pay what is due. We should underline our commitment to global efforts in this regard.
- Second, the concept of national competence over taxation policy should be restated and we should support the concept of corporate tax competition as being vital to the healthy development of a balanced European economy. In a current environment characterised by rising populism and Euroscepticism are future moves to establishing more fiscal integration really desirable (and politically achievable)?
- Third, we need to take a leading role in combatting the rise of protectionism and anti-American feeling across the EU. Although it is sometimes hard to remember given the prevalence of such feelings in Europe, the US is Europe’s most important economic and security partner.
It is easy for those of us in the “Brussels Bubble” to support making big companies pay their fair share of taxes and to accuse Ireland of illegal behaviour. But, to do so misses the much bigger picture.