Why Europe Must Fight the U.S. on Taxes
In an escalating battle over tax dodging by some of America’s biggest corporations, Washington and Brussels have locked horns. Europe must stay firm.
For once, the polarized camps in Washington agree: Republicans and Democrats, Congress and the White House. America, they all say, must join in the battle against an aggressive enemy threatening vital U.S. interests. The enemy’s name? The European Union.
That’s because the European Commission has turned on some of America’s largest corporations, including Apple, Starbucks and Amazon, demanding that they pay vast sums in unpaid corporate taxes. With money, power and prestige at stake, conflict looks inevitable.
Already the drumbeat is quickening. Washington has threatened “retaliatory action” against an EU order for Apple to pay €13 billion ($14.6 billion) in taxes on years’ worth of global profits funneled through two dubious subsidiaries in Ireland. The threats lack specifics: The Americans hope to intimidate Europe by keeping vague their plans for any possible escalation. But there is no doubting the potential for a dangerous escalation. What began as an EU investigation into illegal state subsidies now looks set to jeopardize a long-standing relationship that’s crucial to both parties.
The tensions, of course, aren’t new. But the mood is uglier this time. The current dispute comes at a time when chauvinism and economic nationalism are being revived on both sides of the Atlantic. Globalization’s promises of prosperity have not panned out for all, and populists like Donald Trump have exploited a widespread yearning to refocus on purely national interests. “America First” was the slogan deployed by Trump during his campaign in an attempt to overturn the global economic order that dates back to the end of World War II.
The tax dispute isn’t about whether taxes should be paid at all. Americans and Europeans agree that the current state of affairs – where many multinationals escape meaningful taxation – is deeply unfair, indeed offensive. Both parties want a new deal which will obligate companies to pay their fair share. The dispute is over who will get the windfall of clawed-back taxes. Europe? Or the United States?
Thus, the Commission’s cases against Apple and others is not just an internal European matter, even if the cases involve European jurisdictions. Ireland, for example, has become a popular place for American high-tech companies to set up shop because of its generous corporate tax rates. What’s more, Ireland has additional loopholes – and special deals with the companies – that can reduce the tax bill almost to zero. Ireland wants to keep these special relationships and has appealed the ruling.
The Americans, in turn, accuse the Europeans of unilateral action, of changing its tax