Apple, Ireland, EU, Juncker, and Tax

From Marginal Seat 2 September 2016

Ireland has just confirmed that it will fight the EU tax bill imposed on Apple in Ireland.

The tax bill was imposed by Margarethe Vestager, the European Commissioner for Competition.

According to Reuter’s, Vestager said that

since being alerted to Apple’s methods and other cases by a U.S. Senate probe in 2013, the Commission has been looking through about 1,000 such instances in the EU

This row has been brewing for years.

In 2014, the Consortium of Investigative Journalists operating out of Washington DC disclosed leaked documents they said showed Luxembourg had become a centre of corporate tax avoidance for over three hundred major international companies.

And Jean-Claude Juncker, the current President of the European Commission, was prime minister of Luxembourg from 1995 to 2013, and is accused of being involved in the agreements.

As the Guardian revealed in 2014

The leaked papers show Luxembourg acting as a go-between, both enabling and masking tax avoidance, which always takes place beyond its borders. The documents are mainly Advance Tax Agreements – known as comfort letters. The leaked papers include 548 of these private tax rulings. These ATAs are typically schemes put to the Luxembourg tax authorities which, if implemented, reduce tax bills substantially. If the Luxembourg authorities approve the scheme they provide a comfort letter which is a binding agreement.

If the EU Commission wins on appeal, then a whole raft of tax matters will unravel and Luxembourg’s head will be on a plate.

It’s not just tax, though. As always, sweetheart deals are done for a reason. And if the deals are upset, there can be consequences.

In 2015, Vestager ordered Cyprus Airways to pay back millions in state aid it had received in a restructuring package.

Vestager said that under the EU rules, there must be ten years or more between state bailouts that companies receive, and Cyprus Airways had already been bailed out in 2007.

So another bailout was a disguised way for the state to subsidise the airline, which meant unfair competition with other airlines.

As a result, Cyprus Airways went out of business, jobs were lost and those ‘other’ airlines picked up the business.

So the result was that the office of the Commission for Competition in the EU reduced competition by driving one of the airlines out of business.

That may be necessary fallout of a decision to defeat tax avoidance in the EU.

But who know what the eventual consequences will be? 

And who knows what the politics within the EU will decide in the background to the forthcoming appeal, given the embarrassment to Juncker?

This could get messy.