Brexit Britain Could Be New Sweetheart After EU-US Relations Soured by Apple Tax Ruling
Comment of the Day

August 31 2016

Commentary by David Fuller

Brexit Britain Could Be New Sweetheart After EU-US Relations Soured by Apple Tax Ruling

My thanks to a subscriber for this informative article by Lynsey Barber for City A.M.  Here is the opening:

Souring relations between the US and Europe in the wake of the EU competition watchdog ordering Apple to pay a record multi-billion pound tax bill could hand the UK a post-Brexit boost.

Britain could be the big winner from the tax feud between Europe and the US after the EU competition commission ruled Apple should pay a record €13bn in back taxes.

It could position itself as a more attractive destination in the region than Ireland, the Netherlands and Luxembourg, where the majority of the biggest US tech companies are headquartered, away from the growing stranglehold of state aid laws and EU Commission, which Ireland accused of trying to influence tax policy.

Apple slammed the ruling by competition commissioner Margrethe Vestager after a two year investigation which concluded it paid an effective tax rate of less than one per cent in 2014, amounting to state aid and compelling Ireland to collect a decade’s worth of back taxes. Both Apple and Ireland will appeal the decision, a process which is expected to take several years to make its way through the courts.

Apple finance chief Luca Maestri called the ruling "devastating" for the European economy while chief executive Tim Cook essentially accused the commission of moving the goal posts.

"Beyond the obvious targeting of Apple, the most profound and harmful effect of this ruling will be on investment and job creation in Europe. Using the Commission’s theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed," he said, adding that it remained committed investing in Ireland.

The US Treasury said the ruling would "undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the EU" after last week warning the commission of the “chilling effect” it was likely to cause to investment.

Apple is also among a group of top Silicon Valley firms to have warned the Netherlands that changes to its tax regime would risk foreign investment and jobs.

ETX Capital analyst Neil Wilson said: “This is building into a tussle between the EC and US companies, but it’s also a turf war between US and European regulators. For Apple and others like it, this could be a watershed. Caught between an aggressive EC and the Obama regime’s clampdown on tax inversions, it’s looking increasingly tough for multinationals to avoid paying the going tax rate.

“Britain could benefit. If Ireland cannot offer sweetheart deals within the EU, the City of London can perhaps offer something more appealing outside the bloc.”

David Fuller's view

“Those whom the gods wish to destroy they first make mad.”  When historians rake over the ashes of the EU, they will marvel over the absence of good governance.  How could it have happened when there was so much goodwill among the world’s democracies for this historically interesting and cultivated region but too often a war-torn continent? 

Actually, it started well with the European Economic Community (EEC) created by the Treaty of Rome in 1957.  The EEC’s initial aim was economic integration among the six founding members: Belgium, France, Italy, Luxembourg, the Netherlands and West Germany.   Three years later the European Free Trade Association (EFTA) was formed in 1960, consisting of Iceland, Liechtenstein, Norway and Switzerland.  

The two links above will provide further details but the EEC and EFTA worked rather well, leading to an enlargement in 1973 when Denmark, Ireland, the United Kingdom.  Then Greece, Spain and Portugal joined in the 1980s. 

Arguably, these sensible economic arrangements became problematical with the Maastricht Treaty in 1992.  Its main architects were Helmut Kohl and François Mitterrand, creating a much closer political alliance called the European Union (EU).  The Euro was introduced in 2002.      

This was a triumph of political ambition over economic common sense.  There was certainly no groundswell of public opinion in favour of a Federal Europe, consisting of widely diverse cultures.  Consequently, democracy was compromised in the push for ‘more Europe’, meaning a single European state.  However the tragic mistake, which many people with economic backgrounds realised, was to introduce the single currency way before there was any realistic prospect of, let alone agreement for a Federal European state. 

The consequences have been apparent for years – a moribund economic performance within the Eurozone, compounded by largely socialist policies, leading to tragically high unemployment in the EU’s Southern regions, increasing political tensions within many of the EU states, and an unelected and increasingly powerful European Commission which in this latest instance has retrospectively trampled over what used to be the sovereign rights of Ireland.  It has also created a row with the US government, angered Apple and no doubt some other American Autonomies.  The EU’s Federalist train is derailed. 

Returning to the article above, I would encourage PM May to have all of the government’s departments ready with clear plans for post-Brexit action.  In fact, this is what she is probably doing.  There is no need to follow the EU’s untested script, which is just a web of details requiring endless ratifications, as a means of deterring countries from leaving.  It worked with poor, demoralised Greece but the UK is another matter. 

Once PM May thinks her government is ready, I assume she will declare Article 50, hopefully in January 2017 at the latest.  Article 50 means that the country would then have two years to negotiate, but why should it take that long?  The UK requires full-Brexit to regain its sovereignty.  There is nothing to negotiate; we are leaving the EU lock, stock and barrel. 

(See also: The Apple fiasco shows why corporation tax is an outdated anachronism, by Allister Heath of The Telegraph)

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