Saturday 1 October 2016

'This is hard ball. It says we deprived other countries' taxpayers of money'

Published 01/09/2016 | 02:30

EU Competition Commissioner Margrethe Vestager Picture: Getty Images
EU Competition Commissioner Margrethe Vestager Picture: Getty Images

'Simplify, then exaggerate". This is the advice that is often given to newspaper columnists. Few events show better than the Apple tax case how bad that advice can be, not because the matter cannot be exaggerated, but because it cannot be simplified in any honest way, at least not yet.

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Today's column attempts to clarify what can now be clarified, and cast light on some of the issues that will take time to clarify.

First off, the Apple tax/state aid case is massively complex, as evidenced by the years it has taken the European Commission to come to Tuesday's conclusions that Ireland's tax treatment of the company was in breach of rules on states aiding companies with taxpayers' money.

Understanding the findings will require the European Commission's full setting-out of its position, which is unlikely to be available until next year if this case follows the timeframe of similar cases, such as the Netherlands' treatment of Starbucks' profit taxes.

Ultimately, the people who will decide whether Brussels is correct in its interpretation of the law are judges in Europe's highest court in Luxembourg.

Despite all this, and in particular despite the unavailability of the commission's full reasoning, reaction to the finding against Apple and the Irish state has been predictable. Those who instinctively dislike meddling bureaucrats and believe businesses should be allowed break free of red tape view it as outrage. The anti-business brigade, who find the notion of companies making profits at all somehow objectionable, think it is a victory to be cheered from the rooftops. Personally, I am reserving judgment until the full findings are published.

So what can be said with certainty at this point?

The commission's finding that Apple owes €13bn plus interest (likely to be at least another couple of billion euro) is unprecedented in size. To put it into an Irish context, it is almost twice the amount paid in taxes on profits last year by every single company in the country combined. On the spending side, €13bn is around what the State spends on healthcare in a year.

In other words, this is big money. It is big money even for a company such as Apple, which is the most valuable in the history of the world. But as Apple's cash reserves (accumulated profits which it has not paid out to its shareholders) stand at around €200bn, it would have no difficulty footing the bill. Nor is there much by way of commercial reason to believe that paying the fine would cause the company to spend less on investment on a global basis.

Despite that, it can also be said with certainty that the company will challenge the finding in the EU's court of justice. That will happen whether or not the Irish government agrees to participate in the case.

That, in turn, is because under European law member countries can take cases against any EU institution if they believe those institutions are wrong on a point of EU law. Private individuals, be they companies or people, can only take cases in the EU court if they are the subject of a decision. That is clearly the case for Apple, and the tech giant has already stated that it is lawyering up and heading for Luxembourg.

But all this will take time. Given the backlog of cases before that European court, the multiple stages that cases must go through at the court, and the unprecedented nature of this case in European competition law, there will be no rushed judgment. It will be years before all sides have exhausted their legal options and the case is definitively settled.

Moving on from the realm of certainty to aspects of the case that are less clear.

The "directorate general" in the European Commission that deals with all issues affecting fair competition in the European single market has played an important role in keeping the playing field level across Europe over decades.

As is usually the case, smaller countries have benefited more than bigger ones thanks to these rules for the simple reason that without them there would be a 'law of the jungle scenario'. And when things work on a 'law of the jungle' basis, the small guys get clobbered by the big guys.

But the history of "DG Comp", as it known in the Brussels bubble, is not without failure. Previous decisions against countries and companies have been challenged in the court and defeated. As is always the case when it comes to courts, outcomes are uncertain. The outcome of the Apple case, and a handful of others like it, is subject to additional uncertainty because there are few precedents in the EU courts in relation to corporation tax regimes and state aid law.

Another big area of uncertainty relates to one of the most unexpected aspects of Tuesday's finding. Brussels effectively invited other EU member countries to seek a slice of the €13bn-plus pie for sales of Apple products that were purchased in their countries but booked in Ireland. This is real hard ball. In effect, it says that Ireland has deprived other countries' taxpayers of money due to them. It gives other countries an incentive to back Brussels and further isolates Ireland on the issue. That is rarely a good place to be when the stakes are so high.

Irish Independent

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