Brian Keegan: Apple tax appeal does not add up for EU Commission
Brian Keegan, director of public policy at Chartered Accountants Ireland.
Last week’s decision by the European Commission to appeal the Apple tax case has added further to the uncertain tax environment in which major multinational companies are operating.
Parking aside many of the legal arguments, the Apple case crystallised a particular political concern that some countries like Ireland use their tax systems unfairly to the advantage of the businesses that locate and operate there. The General Court of the European Union held, on the facts rather than the political assumptions, that this was not the case for Apple's operations in Ireland and that a claim for some €13bn in tax was not valid.
However, by the time the judgment was delivered, many of the points in the Apple case were already redundant. In particular, the US Tax Cuts and Jobs Act 2017 cancelled out the strategy of deferring tax on profits of US multinationals earned outside the US by keeping those profits outside the US. The facts are settled, the tax liability is settled. So what exactly is the Commission trying to prove by its appeal?
Not only have the facts of the case moved on but the international tax debate has moved on too. In the past decade, international efforts coordinated by the OECD have hobbled the use of tax havens through aggressive tax planning by multinational companies to reduce their tax bills. With a few exceptions, those international efforts known collectively as the Base Erosion and Profit Shifting Project, or Beps, have been largely successful.
We have decided to appeal the General Court's judgment of July 2020 on the Apple State aid case in Ireland: https://t.co/sDQmEiN450
— Margrethe Vestager (@vestager) September 25, 2020
One of the consequences of the Beps project has been that legitimate tax regimes with low rates (like Ireland) have proved to be safer locations for multinationals to manage their tax affairs. This at least in part explains the bounce in corporation tax receipts in this country in recent years, now more badly needed than ever.
The next instalment of the OECD project involves establishing a minimum effective tax rate for multinational companies irrespective of where they operate, coupled with additional tax payments in the countries where they have markets as well as the countries where they have their operations.
These plans are seen as costing the likes of Ireland some tax revenue, as the head of the OECD tax project, Pascal Saint-Amans has observed. Similar predictions have been made before, but have not transpired.
A minimum effective rate of corporation tax is seen as further preventing the artificial manipulation of profits to reduce the tax bills of multinationals. Setting a minimum rate is a political rather than an economic decision, but it can be assumed that countries will jealously guard their existing tax revenues. The idea of relocating taxing rights to where a market exists rather than where a company is based is more controversial. The impact of the pandemic has pushed back the likelihood of achieving consensus on this element because it reinforces protectionist concerns.
The Commission’s decision to appeal the Apple ruling is a further example of protectionism at work. The most compelling reason for backing the OECD efforts is that they involve over 100 countries, whereas the EU's efforts involve only 27 countries. While the Commission's pride may have been bruised on losing the original Apple ruling, the decision to appeal the case further does not advance the cause of an internationally agreed approach to the taxation of multinational companies in any way.
Ironically, by appealing the Apple decision, the Commission harms its own aspirations to regularise the international tax regime.
- Brian Keegan is director of public policy at Chartered Accountants Ireland
