Margrethe Vestager, Europe’s competition commissioner, has just turned herself into the EU’s new tax czar.
No matter how much the Danish commissioner insists the €13 billion she wants Apple to pay in back taxes to Ireland is a decision grounded in EU laws against state aid, her remarks mark a direct intervention in how countries set and collect taxes, which has long been a preserve of national governments beyond the reach of Brussels.
In so doing, Vestager has opened up a new front in the contentious row within the EU just when the Brexit vote in June has sidelined the U.K. — traditionally, the fiercest defender of the national prerogative on tax matters. It also probably reaffirms the Leave camp’s choice and fuels Euroskeptic sentiment in other EU countries.
This is a debate that has been bubbling along under the surface at least since 2001, when the Commission unveiled a strategy to create a single market in corporate taxation. On one side are countries like France that regard different tax rules in different jurisdictions as a standing invitation for creative cross-border strategies by companies to minimize taxes. On the other are those like Ireland and the U.K. that believe in using tax policy to enhance economic competitiveness.
In a 2015 speech, Pierre Moscovici, a former French finance minister and the European commissioner in charge of taxation, said: “Democratic accountability is also at risk when large corporations are in a position to make Member States compete to house their headquarters or operations: the prerogative to set the level of taxation is no longer exercised by citizens and their representatives, but by multinational corporations.”
In contrast, Mark Littlewood, director general at the Institute of Economic Affairs, a London-based “free market” think tank, argued that Vestager’s ruling is another “hammer blow to sensible tax competition” in the EU, adding that such decisions “only help to further undermine investment, growth and enterprise.”
The EU’s executive arm has long been determined to gain more control over tax rules within the bloc, and has been frustrated at the lack of progress.
Plans to “harmonize” corporate taxation among member countries began 15 years ago and eventually morphed into a 2011 initiative known as the Common Consolidated Corporate Tax Base (CCCTB) — or “a single set of rules that companies operating within the EU could use to calculate their taxable profits.”
But disagreement among EU members proved too wide and the program fell into abeyance until it was relaunched in June 2015 on the heels of a growing uproar over cross-border tax practices of U.S. multinational companies such as Apple, Starbucks and Amazon. The Commission expects to table a revised — and mandatory — CCCTB later this year.
At the heart of the debate on this issue has been Ireland’s low 12.5 percent corporate tax rate and even sweeter deals Dublin allegedly offers to attract companies to set up shop in the country.
The Commission said Apple paid an effective corporate tax rate of 1 percent on its European profits in 2003, down to 0.005 percent in 2014.
Even so, Ireland’s low tax policy has had the backing of other EU member countries such as the U.K. and the Netherlands on the grounds that the competition to lower corporate tax rates encourages Europe’s overall competitiveness.
Meanwhile, U.S. officials have pointed to populist pressure on European governments to go after major American corporations while imposing austerity budgets on their own citizens. In addition to Apple, the Commission has initiated state aid investigations of Starbucks, Amazon, Fiat-Chrysler and McDonalds.
The opposing camp, led by France and Germany, however, argues that widely different corporate tax rates and preferential government tax policies encourage tax evasion and tax avoidance by companies. Thus, they are seen as insidious loopholes that should be closed.
Calls to harmonize tax rates nevertheless were drowned out by the more urgent task of putting out the fires from the eurozone crisis. During the Irish bailout, the French and Germans abandoned their efforts to up the country’s 12.5 percent corporate tax rate. Now, the talk of harmonization is more about the technical matter of aligning the tax base, or getting all EU countries to tax the same things.
And any renewed push in that direction may have received an unanticipated boost when British voters decided to leave the EU in the June 23 referendum. With the U.K.’s departure from the bloc, the biggest proponent of tax competition and obstacle to the CCCTB will also be removed.
Commission sources insisted that its decision on Apple had nothing to do with politics. Its job is to ensure that all companies are treated equally by EU countries across the whole bloc whether with state loans, grants, or tax arrangements, they say.
The Commission says it would not be doing its job if it didn’t react to sweetheart deals.
Be that as it may, Vestager’s action Tuesday has again highlighted the battleline on the EU’s corporate tax policy.
Pierre Briançon in Paris contributed to this article.