The Financial Times, so often a Brussels Pravda, frets that the EU Commission’s assault on Ireland’s right to set its own taxes might dim enthusiasm for the European project on the Emerald Isle:
The [Irish] government may now be on a long-term collision course with the EU over the tax affairs of Apple and other US multinationals with big operations in Ireland. That raises the prospect that two of Ireland’s settled long-term national policies — being an enthusiastic member of the EU while being a low-tax location of choice for US multinationals investing in Europe — are in conflict. Successive Irish governments have always sought to avoid such a scenario.
The risk for [Irish prime minister] Kenny is that, in adopting an aggressive fightback against Brussels, he sparks the first flames of anti-EU sentiment in a country where Euroscepticism has never been a political force. According to a Eurobarometer survey in March, only 14 per cent of Irish people had a “negative” image of the EU.
And yet the Irish rejected the EU’s Treaty of Nice in 2001. They were then persuaded to change their minds in a re-vote the following year. In 2008, they rejected the EU’s Lisbon Treaty, but were persuaded to reverse that vote too in 2009. Amongst the inducements to do so was a legal guarantee that the EU would leave Ireland’s tax affairs to Ireland. Brussels is now trying to get round that with the claim that the country’s tax practices can operate as a form of (illegal) subsidy to companies based there.
So we are now witness to the bizarre spectacle of Ireland’s heavily indebted government moving heaven and earth to avoid collecting €13 billion of backdated tax which the EU wants Apple to pay. It is doing so because it realises what is really at stake: the EU has finally found a way to undermine the low-tax formula that has been the foundation for Irish competitiveness. If the EU succeeds then Ireland stands to lose far more than €13 billion as other companies move elsewhere. Michael Noonan, Ireland’s minister of finance, says the only rational choice is to fight the EU and that ‘to do anything else would be like eating the seed potatoes’….
Like Britain, [Ireland] has adopted an open approach to the global economy, encouraging wealth creation and agreeing deals with American companies which prefer single taxation to double taxation and use Ireland as a stepping stone to EU markets. Like Britain, Ireland prides itself on offering low tax and a stable legal environment — yet the country now finds the EU is taking a wrecking ball to both. In so doing, the EU has served notice to American firms: they’re not really safe in any of its member states.
Even the FT concedes:
But scepticism exists, as is evident from the vehemence of the government’s reaction, which has been echoed by the business and finance industries and parts of the media. The headline on an editorial in the Irish Independent — “Ireland must stand up to faceless EU bullies” — was a fair reflection of the official mood.
Michael O’Leary, the boss of the Irish airline Ryanair (and, ironically, a staunch advocate of the UK remaining in the EU) has been even less diplomatic:
’Frankly the Irish government should turn around – they shouldn’t even appeal the decision – they should just write a letter to Europe and tell them politely to f**k off.
It doesn’t work that way, Mr. O’Leary.
The FT also notes “the resentment that has bubbled under the surface since Ireland’s banking crisis between 2008 and 2010”:
At the time, Ireland bent over backwards to do what Germany and the European Central Bank demanded. Dublin cut spending and pensions and raised taxes. And it repaid bank bondholders — often German and French investors — at enormous cost to the Irish state.
Meanwhile, Nellie Kroes, the Dutchwoman who was the EU’s competition commissioner before the current incumbent, Margrethe Vestager, has contributed (the Guardian reports) to the debate:
The European commission’s decision that the technology group Apple owes Ireland €13bn (£11bn) in unpaid taxes has been branded “fundamentally unfair” by its former competition commissioner, Neelie Kroes…Kroes said state-aid rules should not apply to tax matters. “EU member states have a sovereign right to determine their own tax laws,” she said. “State aid cannot be used to rewrite those rules. However, the current state-aid investigations into tax rulings appear to do exactly that…
Kroes is also critical of the retrospective nature of the ruling, which determined Apple had underpaid its Irish taxes from 2003 until 2014, saying a fundamental principle of tax law is that changes do not apply to past years. She writes: “You cannot change the rules of the game through ad hoc state-aid enforcement, and then seek retroactive recovery for unpaid taxes. Doing so would be fundamentally unfair and would harm competition, growth and tax income in Europe. And it raises serious questions about legal certainty and the rule of law”.
The EU, of course, tends not to go in for the rule of law when what it sees as its interests are challenged.
Speaking of which, note this from a shrewd dissection of the EU’s (feeble) case by Cillian Fleming (and published by the Adam Smith Institute).
The Commission stated on 31 August that Ireland is free to spend the €13bn of uncollected taxes how Ireland wishes. This, while being in direct contravention to European fiscal principles (which state that windfalls should be allocated to national debt reduction), was also political act designed to undermine the Irish government’s reaction domestically.
The Irish government is currently a minority government composed of Fine Gael (a centrist Christian Democratic party) and mostly left-of-centre populist Independent MPs. The Commission’s statement could foment further unease domestically by providing pressure to the populist Independents not to support a cabinet decision to appeal the finding, which has potential to collapse the government. It is naturally very much within the Commission’s interests not to be challenged on this, and it appears that the Commission’s statement was designed to weaken the government’s political freedom to challenge it.
Fleming:
Irish tax policy is and ought to be the sole business of the Irish government. Any intrusion into this by the EU should be resisted strongly unless it can be shown there was very specific preferential treatment that was more akin to a subsidy than a true feature of the tax system. At the very fundamental level, unless there is a deal catered specifically to Apple, this amounts to a Commission overreach into national tax policy. Tax policy, as set out in European Law, is the sole competence of the Member States. If it becomes a case where the EU may declare tax law features “State Aid”, it sets a dangerous precedence for EU intervention in an area that should be the sole remit of national governments.
The problem, however, is that at a very fundamental level Brussels does not recognize that anything is truly in the sole remit of the EU’s member states. ‘Ever closer union’ means what it says.
Fleming argues that Ireland should appeal this decision to the EU’s top court, the European Court of Justice. And so it should, but its prospects of success are unlikely to be too good. When it comes to extending the powers of the EU, the ECJ is generally more lapdog than court.
Best guess is that the lapdog will be used to bring Ireland to heel.