On July 15, 2020, the General Court of the European Union ruled that Ireland had not offered illegal state aid to Apple, so the computer giant did not have to pay €13 billion in back taxes[i]. Apple had been allowed to set up its European operations so that on paper they were in Ireland, even though it did not have a physical office with employees. The European Commission objected to this arrangement, and it lost.
“The Commission stands fully behind the objective that all companies should pay their fair share of tax. If Member States give certain multinational companies tax advantages not available to their rivals, this harms fair competition in the EU,” said Margrethe Vestager, executive vice-president of the European Commission and European Commissioner for Competition, in a press release. “It also deprives the public purse and citizens of funds for much needed investments – the need for which is even more acute during times of crisis.”
Apple’s deal was not necessarily available to its rivals. Apple’s legal team consulted with Ireland’s revenue officers to ensure that their strategy would meet the nation’s laws, and it received private letter rulings that allowed its plan to go ahead.
Ireland is a small nation, with 5.1 million people and a GDP of $353 billion. The people are highly literate and share a rich culture, but the nation has been impoverished through much of its history. It continues to have a high out-migration rate. Within the EU, it competes with Germany and France, considerably larger and wealthier nations. One way that Ireland competes is by offering corporations a low-tax regime for their European headquarters. From an Irish perspective, the deal with Apple is a good one.
Apple saved money, to be sure, but it is unlikely that this deal was seen as a competitive advantage over Apple, Google, or Microsoft. Apple’s hardware and software competitors are also major multinationals with their own legal teams perfectly capable of negotiating sophisticated tax preferences in low-tax havens. Which they do.
The problem here is not competition. It isn’t even that the deal deprived the Irish people of tax revenue. Apple paid money to Ireland for the ability to use its tax laws without drawing on other services in the country. From a fiscal perspective, Ireland received free money. Had Apple set up its European headquarters somewhere else, Apple might have paid more in taxes, but that money would not have gone to Ireland.
Apple competes against companies that also receive tax preferences. Ireland competes against other nations to receive tax revenues from multinationals. The tax deal that Apple and Ireland drew up is the result of both sides looking to maximize their competitive advantages.
The problem is the flawed European Union structure. Members states share has standard regulations and centralized monetary policy. This leaves the nations to compete on fiscal policy, and that’s exactly what Ireland did.
