Wednesday 12 December 2018

EU wants taste of our Apple pie

The tech giant’s campus in Cork is in the sights of the European superpowers. Photo: Bloomberg
The tech giant’s campus in Cork is in the sights of the European superpowers. Photo: Bloomberg
Adrian Weckler

Adrian Weckler

So France and Germany want to relocate Apple, Google and Facebook from Ireland to Paris or Berlin. Indirectly, that is.

A battering ram of new tax proposals from EU countries and the European Commission will try to leverage the continent's top two countries into tech's riches, one way or another.

If the digital giants won't move their headquarters into Europe's biggest countries, they should cough up some other way.

And if Ireland risks losing its most important industrial pillar along the way... well, that'd be a shame. But it's necessary for the greater good of Europe.

"The growing challenge of ensuring that the digital economy is fairly taxed has still not been adequately addressed, primarily due to a lack of international consensus and the multidimensional nature of the challenge," said the European Commission last week, outlining new initiatives to make tech firms pay more tax in the bigger countries.

The basic argument is that tech companies are too good at using the single market to base their tax liabilities in the area with the lowest rates. From there, the same companies use loopholes in international tax law to pay either tiny rates on their European income or nothing at all, by deferring tax payments in their ultimate taxable domicile, the US.

Nobody really likes this. The question is what to do about it?

The answer, says the Commission and the big EU countries, is to sidestep international tax considerations and just slap down some new, no-quibble, tax rules on any big tech firms doing business in the EU.

In so doing, the biggest markets - Germany, France, Italy and Spain - might reap billions.

Even better, if there's no significant tax advantage for a tech giant to locate in Ireland, they might as well locate in Paris or Nice or Berlin.

So at a stroke of a tax pen, Apple, Google and Facebook might be legislated away from Dublin and Cork into central Europe, where political power is now hardening.

While there are strong moral and fiscal arguments in favour of the Franco-German-cum-Commission position, there is another perspective.

There are hundreds of thousands of people in Ireland with some reliance on the jobs or commercial activity from companies like Apple, Google, Intel and Facebook. The ecosystem built up here through this sector is an absolute core part of our ability to keep higher proportions of young people from emigrating.

It is also core to many Irish companies getting off the ground with local founders who have graduated through this ecosystem.

We don't yet have the infrastructure, universities, cities and home-grown companies to stand alone against metropolitan powerhouses a short flight away.

In other words, this is a national interest.

What would Germany do if its car industry was threatened? Or France with its oil and aerospace interests?

I'm not sure they would go along with it quietly.

The French are past masters in mixing statecraft, international relations and their own commercial interests, as anyone who has followed the contemporary histories of firms such as Elf or Airbus will know.

Germany is not far behind. One of the primary jobs of any German chancellor is to place the interests of the car industry - of which it is the biggest global player, per capita - at the heart of German influence in international deals and treaties.

To those suggesting that Ireland is adopting an amoral position on defending its existing tax law, isn't it natural for it to defend its national interest?

No one can blame France and Germany for wanting a bigger cut. Those potential extra tax revenues might be crucial to maintain the world-class hospitals, pensions, social benefits, roads and railways their countries are famed for. Anyone who has spent any time in France or Germany knows how good this infrastructure is. But most of it is heavily subsidised and it's really expensive. How can they keep it going if the fastest-growing sector chooses other places to operate from?

I recently spoke with one French journalist who argued that not having the same high standards of healthcare and transport, Ireland wouldn't miss it.

In other words, the big European centres of civilisation are core while peripheries (like Ireland) are not.

What's peculiar about the current tax proposals is that they're being advanced in the name of furthering a single market.

The same proponents sometimes put the US forward as an ideal for a single market.

But in the US, competing for big corporate bases is an everyday occurrence. At present, Amazon has published a tender request document, asking cities to bid for its next headquarters. It promises 50,000 jobs averaging $100,000 in salary. It's fairly explicit in asking applicant cities to outline - in detail - what financial incentives they'll be offered to locate their business there.

They also invite suggestions as to what laws might be written or amended for them, should the need arise.

Certainly, this might seem a little dystopian. Yet we must give the US one thing - it largely acts as a single market. And even within this, it has the facility to give regions power to compete using hefty financial incentives.

What the EU appears to want is something much more static. Rich regions of the market (such as France and Germany) should not be supplanted by poorer regions (like Ireland) based on financial instruments such as tax.

A single market is all well and good when it comes to selling German or French cars without import duties. But tech services from a poorer part of the market? Sorry, that's got to be checked.

Sunday Indo Business

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