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State aid recovery to the EU not the Member State

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The finding by the EU Commission that Apple should return €13 billion (plus interest) in unpaid taxes because they constitute illegal state aid has raised a number of interesting and important issues that go beyond the specific case (see here and here for earlier commentary). One of these is that the Irish government is in a pickle. But worry not: there is a simple solution.

Apple is being obliged to pay back taxes. It is logical that it is unhappy about this and will appeal. On the other hand, it is important to realise that the Commission has not said that the Irish government is entitled to claim unpaid taxes from a major corporation, but that it is obliged to do so. On the face of it, even leaving aside interest, the €13 bn would be a very nice fiscal windfall (roughly equal to annual health spending) for a country whose public finances were battered by the financial crisis. Yet Ireland will also appeal the ruling. Not doing so would, clearly, imply an admission of guilt: the tax deals reached by previous governments with Apple – and by implication with other global corporations – would be brandmarked and the country would suffer a serious reputational loss.

What this tells us is that the EU’s state aid procedures underpinning the ruling that Ireland must recover unpaid taxes, are problematic. [Read more…]

Til the pips squeak? More on the Apple tax case

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Last week I considered the broader implications of the plans by the EU Commission to force Ireland to claim billions of euros in back taxes from Apple. The counter arguments by the US Treasury are weak, I argued, and concluded that “EU Commission needs to stand its ground. And take a big bite of Apple”.

Todays’s news is that the Commission has done exactly that. And the bite – €13 billion plus interest – is bigger than almost anyone envisaged. Some new information has come to light that deserves a brief comment.

The previous post referred to the Financial Times’ assessment that Apple had paid a desultory 2% in corporation tax in Ireland. The latest reports suggest, incredible as it may seem, far lower figures still: “Apple paid an effective tax rate of 1% in 2003 on profits of Apple Sales International. The rate dropped to 0.005% in 2014.” reports the Guardian drawing on the Commission’s analysis.

The other news is a striking confirmation of the main argument of the previous column: that only a supranational authority can stamp out harmful international tax competition and thus prevent a race to the bottom. For the legal appeal against the ruling will be led not only, as expected, by Apple, but by the Irish government. Yes, it will appeal against a ruling under which it stands to gain a windfall of more than €13 bn. (That represents  more than annual government spending on the Irish health service and nearly one-third of Ireland’s annual tax revenue.) And the reason is all too clear. It would put an end to a crucial plank of the country’s “business model” which is to attract mobile sources of tax revenue through opaque sweetheart tax deals, poaching revenues from other countries and driving a race to the bottom. (Yes, other countries are in the same game.)

This is not just about tax. It is about the much more fundamental question of whether the EU can live up to its promise of being an effective supranational counterweight to the negative forces that (along with numerous benefits) untrammelled globalisation has unleashed.