John Bruton

Opinions & Ideas

Category: Europe’s Future

THE APPLE DECISION……….GOOD FOR INVESTMENT IN EUROPE?

apple-euThe EU Commission decision that Ireland must collect 13 billion euros in back taxes from Apple has created quite a sensation. Most people agree that multinational companies can, and should, pay more tax. That general goal of the European Commission is widely supported.

The key question is whether Apple was given selective aid, and , if so, if this breached EU  competition rules.

It is therefore important to say that the Irish government never “selected” Apple for subsidy.

Apple, of its own accord, simply applied for, and was given, an interpretation of Irish tax law as it stood at the time (in 1991 and again in 2007). Any other company, in a comparable legal and factual situation, could have applied for, and got, a similar ruling.

It is important to stress that, in its interpretation of the meaning of Irish tax laws, the Irish Revenue Commissioners act independently of the government. Their relations with individual taxpayers, large and small, are confidential. They hold themselves to a high standard of objectivity and integrity.

The Commission ruling, going back and revising ten years of tax liability on grounds of competition policy, rather than of tax law, creates uncertainty for many other companies about their present liabilities.

At a time when too many companies are failing to invest and are, instead, paying down debt or accumulating piles of cash, this added uncertainty is not good for the revival of the European economy.

It may even encourage some companies to incorporate or invest outside the EU, where the Competition directorate of the European Commission will not have the same power to issue retrospective directives to national tax authorities.

The Commission decision in the Apple case attempts to change the way in which profits can be attributed, for taxation purposes, as between different parts of a multinational company’s structure.

Previously, companies could get authoritative guidance on what was permissible in this respect from the relevant national tax authorities. This was possible because taxation was understood by companies to be primarily a member state, rather than an EU, competence.

Now companies will no longer be able to rely in the same way on these rulings, but will have to seek clarity from the European Commission on whether a ruling could be construed as offering a “selective” advantage to the company. In light of the Irish experience, revenue authorities of member states will be very cautious. All doubtful cases will tend to be referred to Brussels. This will add greatly to the burden of work of the Commission, and will entail an extension of the Commission’s field of activity. Commissioner Verstager herself has said that companies should double check the compatibility with EU Competition and State aid rules of the rulings they have been given by their national tax authorities.  

As the corporate structures of multinationals vary considerably, the national tax ruling on each of them will have to be individually examined and adjudicated upon as to whether “selectivity” of some kind is involved.

The test of whether a ruling is illegal, in the Commission’s eyes, is whether it is “selective”. “Selective” is defined as giving a company an advantage over other companies in “comparable legal and financial situation”. As the factual situation of every company is different, this leaves a lot of room for subjectivity and argument.

The Commission will have hundreds of thousands of tax ruling of the 28 member states to review, and so far it has only looked at a thousand.

The Apple ruling also raises  new questions about which country is responsibility for collecting the taxes on particular profits, depending. Up to now, it was understood that a country was expected to collect taxes on profits on activities within that country. Now, Ireland is being told it must to collect the 13 billion euros from Apple even though, in Commissioner Verstager’s own words, “other countries” may actually be owed the money, not Ireland.

Much of the profit may actually be derived from activity undertaken by Apple in the United States, and any tax to be collected it may belong to the US. But Ireland now is told it must collect the money anyway. This is new form of universal jurisdiction!

This precedent will increase uncertainty, jurisdictional disputes, and compliance costs. Yet the Commission is promoting TTIP, precisely in order to reduce uncertainty and compliance costs. The form of the Apple decision sends a directly contradictory signal.

I believe it would have been wiser for the Commission to concentrate its attention, in a forward looking way, on ensuring the uniform and rigorous implementation of the EU Anti Tax  Avoidance Directive which has already been approved by all member states, including Ireland.

The determination of the amount, and the collection, of back taxes should be left to national tax authorities, who, after all, have plenty of incentive already to go after the money!

LETTER TO EU HEADS OF GOVERNMENT

Along with other members of the “Friends of Europe” group, I have signed to following letter to the EU Heads of Government.  They need, I believe, to look beyond the immediate problems of the Union….The Greek crisis, Ukraine, Transatlantic investment  and the UK Referendum….and present a vision of the future of the Union. Only in that context can these immediate problems be solved.


Sir,

Discord between the European Union’s member governments has been reaching a crescendo, with taunts exchanged not only between Athens and Berlin but almost routinely between some other EU leaders. 

culture of recrimination and rebuke is growing to eclipse the commitment to intergovernmental solidarity and joint purpose that so successfully nurtured European integration over many decades.

Europe’s leaders would do well to turn to the spirit of the Schuman Declaration sixty-five years ago, for solidarity paved the way for the European Union.

In today’s terms, that means both North South and East West solidarity between member states, and between large countries and small.

Finger-pointing by national governments that are beset with their own particular political and
economic difficulties is understandable. But it is profoundly unhelpful. We Europeans face daunting longterm problems that can only be confronted and then overcome by a reaffirmation of unity, a fresh sense of common purpose and bold action.

The EU’s structural challenges are well-known, but not given sufficient emphasis. In most countries of the Union demographic shrinkage is set to reduce active labour force; pension reform has made progress in a number of European countries, but much remains to be done, if we want both financial and social sustainability. Increased immigration could possibly be part of the the answer, but brings with it heightened social and political tensions that carry their own serious risks which the Union must formally and publicly confront.

Enhancing the quality of our human capital is another and crucial part of the answer, but currently we see an alarming disinvestment in education in a number of countries.

Many European governments now hope they see signs of economic recovery, yet the underlying trends are less encouraging. Our slowness in embracing new technologies is handicapping our productivity improvements – twenty years ago Europe’s productivity improved at almost twice the rate as in America, and now it’s about half that of the U.S. The implications for our international competitiveness in what is being labelled the ‘Asian century’ are not encouraging.

On the EU’s home front, it is surely time that everyone with a hand in shaping Europe’s future awoke to the implications of the continuing eurozone crisis. Disagreements between creditors and debtors are cloaking the more important issues of inadequate design and of the North-South gap within Europe.

The latter is widening fast, and unless checked could yet tear the European Union apart.

We believe that a sense of shared purpose between EU governments must be restored. To that end, we urge the European Council to take the opportunity of its next scheduled summit meeting on June 25 to publicly commit to a ‘Doctrine of Unity’. This would see our national leaders pledging themselves to far more cooperation and mutual support because that’s explicit in EU membership though decreasingly observed. This in no way implies “blank check” financial support for any particular member state, but it does seek to reinforce the links that are so essential to Europe.

What is needed is for the Union’s heads of state and government to spell out the underlying weaknesses that cloud Europe’s future. These should be the strategic threats we Europeans must all face up to, as distinct from short-term difficulties. It should put into their proper perspective the damaging public spats between some governments that have been doing so much harm to the EU and to the credibility of the single currency and the common foreign and security policy.

Such a declaration by the European Council would ring loud alarm bells within the EU, and would send an important signal around the world that Europe may be down but is far from out.

Yours,

COPYRIGHT JOHN BRUTON & CONTENT

Enjoy this blog? Please spread the word :)