The European Court in Luxembourg apparently has found it perfectly acceptable that Apple pays less than 1% tax on the profits it generated in the European Union at its European headquarters in Ireland. With its unsuccessful lawsuit that it opened up against Apple four years ago, to pay €13 billion to the Irish tax authorities, the European Commission failed to adequately justify this amount as unlawful state aid. If there is an appeal at the European Court of Justice, the sentence could be similar.
The fault lies in the system of legal tax havens in the EU. Countries like Ireland, Luxembourg, and the Netherlands have lured international corporations for many years with lucrative tax models. The Celtic tiger, which was able to base giants like Facebook and Google in the former poor house of Europe starting back in the 1990s, has therefore rejected Apple’s billions in payment and even – like Apple- sued the European Commission.
In Luxembourg, too, low taxes remained sacrosanct for companies like Starbucks, Ikea and Fiat. For years, the former President of the European Commission, Jean-Claude Juncker, has had to put up with accusations of low-tax constructions that he himself had engineered when he was prime minister of the Grand Duchy.
But as long as tax-dumping is legal in the EU, international corporations will continue to benefit from them. In Austria, a furniture company prefers to pay low taxes in Malta, as determined by a CEO who later became Minister of Finance, Hans-Jörg Schelling. As long as customers tolerate this behaviour, no politician in Austria will shake tax sovereignty either.
The German-Italian European politician Fabio De Masi from the party Die Linke vividly explained the lucrative Apple model. The coveted cell phones or computers were bought as cheaply as possible by the Irish European subsidiary from a diverse number of plants and then delivered to distributors all over Europe at high surcharges. With this, and with the help of opaque licensing fees, the profits remained small in these countries and were later transferred to Ireland where, in 2014, taxes of only €50 were due for every million euros of profit. Apple also justified itself by pointing out that most of the taxes were paid in the United States.
The prudent principle of taxing companies where they make their sales has, thus, been undermined. For this would require a financial report broken down by country with subsequent overall group taxation – a demand which star economists, such as Thomas Piketty and Joseph Stiglitz, among others, have been demanding for years. This would put an end to confusing profit shifts within group subsidiaries in Europe.
However, to the delight of international corporations, the EU member states will not agree so quickly as nobody dares to shake tax competition in the internal market for the time being. The disagreement on tax issues has already prevented the introduction of a financial transaction tax discussed after the 2008/09 financial crisis. With the planned new taxation of digital corporations, the disunity could now ward off new sources of income for the EU budget that are urgently needed because of the Covid19 crisis. U
President Donald Trump immediately stopped France’s solo attempt to impose taxes on Facebook, Google, et al by announcing punitive tariffs on French products. The recent European Court of Justice ruling on data transfer to third countries shows that the EU can act with more self-confidence, including in conflicts with a close partner like the United States.
The EU should now act similarly confidently to ensure tax justice. To this end, new and long-discussed rules for a fair tax base for corporate tax must be introduced. The state-aid weapon drawn by the EU has proven ineffective as a result of the Apple ruling. As long as there are legal tax dumping models, international companies will continue to cover up their profits.