On the one hand, the EU Commission is acting as a white knight for international tax justice. On the other, it is using EU law to bully Ireland and other smaller EU countries into not competing on taxes in ways the Commission would never have dared to try with the UK in the past. Formally, the success of any appeal by Apple or the Irish government will depend on whether Ireland’s claims that there was no selectivity involved in enabling companies to pay almost no tax on their profits is true.
Pushing the limits
In reality, the fight is about the EU Commission trying to prevent multinationals from being given tax breaks by smaller EU countries that deprive other EU states of their ability to tax profits they see as having been earned in their countries. The Commission is pushing the limits of EU law to give itself more clout.
UK looking to beat Ireland at its own game
Tax justice campaigners are delighted with the EU Commission. The UK government may be less sure. After Brexit, the UK will want to try to beat the Irish at their own game: competing as an offshore low-tax state to attract multinationals trading with Europe. And if the UK settles for a ‘soft Brexit’ to protect the City, it could end up being hit by the same EU rules now being used against the Irish, with the Commission newly trigger-happy to use them against a semi-detached Britain.
New Irish tax
But it looks as though Ireland may have the last laugh. The Irish have already come up with a new form of tax break – the Knowledge Development Box – which will leave knowledge-based multinationals such as Apple paying just 6.25 per cent tax in Ireland on much of their profit earned throughout the EU, complying both with EU state aid rules and the latest OECD anti-avoidance rules. Perhaps the Irish government will therefore end up with a one-off windfall of £11 billion and still get to keep its US multinationals.
Tom Wesel is a partner at tax consultancy Milestone.