A “Back Door” to Fiscal Union
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
The Apple Tax is about a lot more than just Apple and the billions of euros in backdated corporation tax it purportedly owes to European governments. It even goes far beyond the question of how — and how much — central authorities should tax recalcitrant multinationals that make billions of dollars in profits on their turf but share few or none of the proceeds.
What is most at stake is the question of who gets to set the fiscal rules in Europe’s foreseeable future. One thing is clear: if Brussels gets its way, it’s not going to be the national government of each member state. And that could be very bad news, at a very bad time, for a number of European economies, in particular Ireland, Luxembourg, and the Netherlands.
“Total Political Crap”
The EU’s Competition Commission slapped Apple with a €13 billion retroactive tax bill. That money is apparently owed to the government of Ireland, its decades-long partner in one of the biggest tax-avoidance schemes of living memory. The Commission argues that the arrangement cooked up between Irish authorities and Apple’s tax lawyers and accountants represented illegal state aid, enabling the U.S. company to get away with paying an effective taxation rate on its European profits as low as 0.005%.
Naturally, Apple does not want to pay the money. Apple’s chief executive, Tim Cook, even went so far as to call the EU ruling as “total political crap”:
They just picked a number from I don’t know where. In the year that the commission says we paid that tax figure, we actually paid $400 million. We believe that makes us the highest taxpayer in Ireland that year.
The government of Ireland doesn’t want the money either, despite the fact that it could certainly do with it: at 128% of GDP, it boasts one of the highest levels of public debt in Europe, which is no mean feat these days. The EU ruling comes at a time of growing concern about the potential fallout from the decision by Ireland’s closest neighbor and second biggest single trading partner, Britain, to leave the EU, which according to some reports is hurting the Irish economy even more than the UK’s.
A “Back Door” to Fiscal Union
Irish Finance Minister Michael Noonan told Irish broadcaster RTE on Monday that: “As far as I am concerned there is no economic basis for this decision.” He added: “They [the European Commission] don’t have responsibility for taxes and they are opening a back door through state aid to influence tax policy in European countries when the European treaties say tax policy is a matter for sovereign governments.”
As a Member State of both the EU and the Eurozone with a “business-friendly” environment that is brimming with local, English-speaking talent, Ireland is an enticing base for global multinationals. Or at least was.
Now that the Commission appears determined to use the popular canard of corporate tax avoidance as justification for expanding its own powers through the homogenization of taxation rules and practices across the 28-member Union — a vital first step toward the long-cherished goal of fiscal union — Ireland’s days as a grudgingly tolerated tax haven on the EU’s periphery are almost certainly numbered.
Despite the fact that both Apple and Ireland have said they will appeal against the EU ruling, it will serve little purpose — at least for Ireland — since the ruling in question has the full support not only of the governments of both Germany and France but also the overwhelming majority of European citizens, who broadly resent the brazen tax avoidance of multinational corporations, both foreign and home-grown, particularly at a time of rising fiscal pressures and so-called austerity. According to sources in Brussels, European governments lose close to €1 trillion each year in tax revenues as a direct result of fiscal dumping and tax fraud.
The Rise of the Global Taxman
No doubt countries like Austria, with its chronically opaque banking system, Luxembourg, whose impressive range of tax-avoidance services was exposed last year in the Lux Leaks scandal, and the Netherlands, a fiscal paradise that is second home — albeit in the form of a mailbox — to 48% of the Fortune 500, will be paying particularly close attention to developments in Ireland.
It’s not just the prying eyes of the EU’s growing army of taxmen and women they need to worry about. As we’ve been warning for over three years, the global trend is toward ever growing cooperation between national and regional tax authorities. Little by little, a global taxation grid is quietly being erected — and all in the name of fighting the evil multinationals that governments have faithfully served for decades, and their devious tax loopholes!
Yet the very same tax information sharing agreements that are already being drawn up by the OECD behind the scenes and which have been embraced by all G-20 nations will also be used to scoop up, store and share information on every individual in every participating country.
In an article last year ominously titled “Why We Need a Global Taxman, Germany’s Finance Minister, Wolfgang Schäuble, was barely able to contain his excitement at such a prospect. Technological advances and global cooperation between more than 100 national governments are making it possible for tax authorities to keep ever closer tabs on the people’s money, he gushed:
Under the Common Reporting Standard, tax authorities receive information from banks and other financial service providers and automatically share it with tax authorities in other countries. In the future, virtually all of the information connected to a bank account will be reported to the tax authorities of the account holder’s country, including the account holder’s name, balance, interest and dividend income, and capital gains.
At a time of unprecedented public debt and ongoing bailouts, both overt and covert, of strategically and systemically important banks and other corporations, it’s hardly any surprise that cash-strapped governments around the world are becoming more proactive, imaginative and cooperative in their fight against tax evasion and the informal economy. But perhaps the European taxpayer should be a little more skeptical about the hidden motives behind the European Commission’s sudden realization that the corporations it has faithfully served for decades should pay a little more tax. By Don Quijones, Raging Bull-Shit.
Trying to tax the Internet? Read… New Leak Confirms: Brussels Has Learnt Nothing from Brexit
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