Only by working with European allies can we crack down on tax avoidance
On Tuesday, European Commissioner for Competition, Margrethe Vestager announced a damning indictment of the Irish tax system with a record €13bn fine being issued to Apple for unpaid tax dating back to 1991.
The fee is the highest ever issued in a state aid case and follows similar rulings against Starbucks and FIAT last year, although for a much larger amount.
For those who have been fighting to crack down on aggressive tax avoidance and evasion over a number of years, this is a real victory in trying to level the playing field between multinationals and local businesses.
The Commission announced that under this sweetheart deal arranged 25 years ago, Apple managed to pay an effective tax rate of just one per cent of its profits in 2003. Worse still, this tax rate dropped to a staggering 0.005 per cent of its profits in 2014.
When you compare this to the already low 12.5 per cent corporate tax rate that small and medium sized businesses in Ireland have to pay, it is clear to see why the system is stacked against fair competition.
You would think that the Irish Government would welcome the additional revenue of €13bn euros that will need to be repaid to them following this ruling, but instead they are fighting vigorously against it and continue to claim they have done nothing wrong. It is important to remember that it is the Member State that gets put on trial for breaking state aid rules, even if Apple pay the fine.
We have seen countries offer these sweetheart deals in order to secure a large multinational settling in their borders. By offering a tax rate cheaper than anywhere else, in theory they can secure the jobs, economic boost and additional tax revenue that they would otherwise lose to someone offering an even cheaper deal.
In practice, luring a big company may not lead to the jobs and tax revenue that a country may have hoped for, as Jersey is currently experiencing.
The United States have also recently been jumping in to defend Apple by claiming that the EU has no right to retroactively tax an American company, as that tax should be claimed by the United States.
They also claim that the EU is disproportionately targeting American companies when trying to shut down these deals. Both of these assertions are incorrect.
The EU is not investigating companies, American or otherwise; they’re investigating the European governments that might have offered them sweetheart tax deals to secure their business. Those deals have been given to Belgian brewers, German chemical companies and Italian car manufacturers – not just US tech giants.
The Commission has a duty to put pressure on both Member States and multinationals to abide by EU tax and competition law. The relatively small fines issued to FIAT and Starbucks last year served as slap on the wrist to Member States to get their tax agreements in order.
The announcement today will send shock waves through every company and country benefiting from sweetheart deals around Europe.
Today is also an emphatic reminder of what the UK stands to lose by leaving the EU. It is only by working with our allies in Europe that we can close these loopholes and make sure competition is fair across the market.
We must make sure that the UK government continues to cooperate with Europe in a serious way if we are to meaningfully crack down on tax avoidance and evasion both in the UK and around the world.
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