BrexitPublic Affairs

No ‘sweetheart’ deal

Apple and Ireland may have won a landmark victory over tax but it’s clear that the European Commission has its sights firmly set on reform.

The ruling by the General Court of the European Union represented a blow to the European Commission’s 2016 finding that Ireland gave “illegal tax benefits to Apple up to 13 billion” and vindicated the decision by the Irish Government to use 8 million of taxpayers’ money to mount the appeal.

However, the Commission pointedly chose the day of the ruling to announce the launch of its new tax action plan, firing a warning shot that its drive on tax harmonisation is far from over.

In 2016, Margrethe Vestager, the Competition Commissioner and the Vice President of the Commission very publicly alleged that the Irish Government’s “selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014”.

Both Apple and the Irish Government rejected the finding and subsequently launched an appeal, with the Government stressing the reputational damage done by the allegation that Ireland was a tax haven. In striking down the Commission’s ruling, the Central Court not only declared that Apple did not have to pay the 13 billion to Ireland but also ordered the Commission to pay the costs of the trial, nullifying the long-standing argument that Ireland had carelessly used taxpayers’ money to appeal.

The Court stated that the Commission failed to show that the Irish State’s support for Apple’s tax avoidance strategies constituted illegal state aid and that they failed to show that the taxes Apple should have paid on the large profits resting in Ireland were due to the Irish State.

Although a blow to the Commission, some small concessions could be taken from the ruling, including that it was right the Commission had powers to investigate matters regarding member state tax affairs.

The EU has suggested it will launch an appeal on the decision to the European Court of Justice, which it must do before the end of September. However, the European Treaties state that any further appeal can only be on a point of law and, given that the outcome was largely determined by the facts, the Commission lawyers will have to weigh up the benefits of an appeal against the political risks of a further loss.

Vestager rallied following the Court’s judgement, despite the damage to her reputation and stated that: “One thing is clear, the fight against aggressive tax planning is a marathon, this is not a sprint. And this marathon, well, it does take place on very hilly ground.”

Prior to the ruling, it was circulated that EU officials were preparing to use a provision in the Treaty of the European Union to introduce qualified majority voting in the European Council on certain corporate tax issues. Such a move would bypass the requirement of unanimity on tax matters and subvert tax matters being subject to a veto by any member state.

Then, just hours following the ruling, the Commission unveiled its new tax reform package, a list of 25 measures aimed at fairer and simple taxation.

The EU Economy Commissioner said on launching the package: “Fair taxation is the springboard that will help our economy bounce back from the crisis.

“We need to make life easier for honest citizens and businesses when it comes to paying their taxes, and harder for fraudsters and tax cheats. These proposals will help member states to secure the revenues they need to invest in people and infrastructure, while creating a better tax environment for citizens and businesses throughout Europe.”

There are obstacles impeding the EU’s efforts for corporation tax reform, evidenced most recently by the pushback by some member states, including Ireland, on the introduction of a Digital Sales Tax, which they argued would disadvantage Europe over other global players. A common consolidated corporate tax base (CCCTB) and the EU Commission proposal on a financial transactions tax (FTT) have similarly failed to gain the support of member states in the push for greater tax harmonisation.

Ireland’s preference is for reform to be undertaken on a more global level, led by the OECD. Company management and control as factors in where a company’s tax is paid are key elements of the OECD’s reform agenda, however, US President Donald Trump has withdrawn the US from the OECD talks, meaning that any progress would likely not happen until after the US election.

In light of the delay, the European Commission will undoubtedly push ahead with plans to curb the enabling of tax avoidance within EU member states. Despite the Apple tax ruling, focus on low tax jurisdictions and the matter of taxing multinationals will continue to be a feature for future years.

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