Intermoney | The European justice ruled last week in favour of Apple over Ireland’s advantageous tax treatment. The case dates back to 2016, when Competition Commissioner Margrethe Vestager considered that Ireland’s tax treatment applied to Apple was irregular and distorting competition in the single market. Vestager also flagged that the company had reduced its tax bill to 0.05% of European profit for over two decades. So she determined that the US company should pay Ireland 13.1 billion euros in taxes and a further 1.2 billion euros in interests. Now, in an appealable judgment to the EU Court of Justice, Brussels is considered as not having been able to properly argue that the technology firm received favourable tax treatment from Ireland, serving to distort competition in the internal market.
The importance of the ruling is greater than it appears, given that it undermines the European Commission’s strategy to end existing tax regimes across the EU. These are based on very low corporate taxation and do great damage to tax revenues in many EU countries. The complexities of tax changes and the steps towards any tax homogenisation in the EU, given that the concept of unanimity comes into play, would have led Brussels to explore other ways of removing this obstacle. The ultimate goal would be to reduce the capacity of multinationals to develop highly advantageous corporate tax schemes. To this end, the European Commission’s main line of action is based on the consideration that excessively advantageous national tax systems imply a distortion of the single market that must be corrected. The point is that last week’s judgment, although it is subject to appeal, calls into question this strategy.
At the moment, the judgment has two major implications. Firstly, large multinationals from within and outside the EU will still be able to save on a high tax bill in respect of their operations in the area. Secondly, one of the mechanisms that was intended to facilitate the consolidation of some of the EU’s major partners public accounts is more than called into question. This is not a minor issue. Particularly when, for example, the IMF estimates that the public debt of the Eurozone members will reach a maximum of 105.1% of GDP in 2020 compared to 84.1% in 2019.