Breaking down the Apple and Schrems rulings
If we had let Apple go it alone, the Government could have orchestrated the biggest lose-lose situation in decades, writes Adrian Weckler
Technology editor Adrian Weckler assesses the impact of the Apple tax appeal ruling and the European Court of Justice ruling on a case involving Ireland, Facebook and the Austrian privacy campaigner Max Schrems. Pictured: Data Protection Commissioner Helen Dixon.
IREMEMBER Apple chief executive Tim Cook’s voice rising in anger on the phone. It was 2016, just hours after the European Commission had ruled that Ireland had showed an unfair tax advantage to Apple. Cook’s company had been ordered by Margrethe Vestager to pay €13bn in back taxes. “It’s total political crap,” he told me. “They just picked a number from I don’t know where.”
The actual numbers are still debatable.
But maybe he wasn’t wrong about the political bit.
The European General Court threw out Vestager’s case. It demolished it, saying it was based on “erroneous” assumptions and wrong facts.
The core case — that other companies were disadvantaged compared to Apple through our tax code — wasn’t really there to make.
So why did the Commission take it?
We all know why.
Europe’s central political core despises Ireland’s industrial set-up.
To them, we’re leeches. We’re a small island that sucks prized industrial players away from where they should be — the mainland.
With every new tech company that establishes itself in Ireland, our unemployment levels stabilise further at a low level. But theirs stay relatively high. Our growth goes up, theirs stays low.
Who the hell do we think we are?
How can they keep their world-class levels of infrastructure, health, education and paid leave if chancers like Ireland seduce the growth-engine US companies that should rightfully set up in France, Germany, Italy or Spain?
How dare we?
In Ireland, many pundits agree with much of this sentiment. Low tax is hurting living standards. It’s enriching a few big companies. Worst of all, they’re American companies.
It’s less usual for these critics to mention how Germany bends over backwards for the car industry. Or France for its chemicals, military and oil industries.
And the way that Europe helped to load Ireland with crippling debt during the 2008 economic crash is often brushed over, too.
No — we’re the bad guys because we have a single low corporate tax rate that is working too well. The case isn’t the end of it.
The Commission looks set to consider a new (unprecedented) ‘Article 116’ move through by a qualified majority vote of member states.
This would seek to equate ‘low tax’ with ‘unfair competition’.
Presumably Ireland would challenge this again.
So yes, Cook was probably right. The €13bn tax case was at least partly political all along.
On a purely tactical note, it’s hard not to regard Ireland’s position here as being vindicated.
There were many who were outraged that Paschal Donohoe joined Apple’s appeal.
How dare he side with a giant multinational — and a lecherous global tax avoidance system — over the needs of better resources for Irish people?
But if Ireland had let Apple go it alone, and if Apple had won anyway, the Government would have orchestrated the biggest lose-lose situation in decades of industrial strategic policy. Not only would there be no tax windfall anyway, but we would have diluted our purported reputation of being a country that consistently backs inward investors.
(There’s even still a chance that Vestager and the Commission will appeal one last time and win, meaning the best of all worlds for those who want to keep Ireland’s pro-business brand intact but secretly hanker after some of those tax billions.)
It looks like the European courts, when looking at the issue in a dispassionate way, have decided that political imposition shouldn’t be dressed up as a legitimate competition issue.
I’d like to add a personal note here. Given the tone of this column, it’s fair to ask whether I have any background political convictions in these matters that might inform the reporting. I do, but maybe not the one you’d expect from the preceding paragraphs. I’m a European federalist. In fact, I’d confidently bet that I’m more radically pro-European than almost anyone reading this. Remember those guys in the 1990s who enthusiastically wanted a United States of Europe with a federally integrated system? That’s me. And still is.
Europe is, I believe, the world’s beacon of civilisation and hope. Its principles and aspirations are the highest in the world. And it works way, way better the more integrated we get. Almost everyone benefits, especially economically.
So this is a really interesting case to test the views of anyone in a similar frame of mind. In theory, what Vestager and the Commission are trying to do fits in with a federalist’s idealised view of how to run an economic union. In the long term, it makes absolute sense to have common tax rates. But there’s a massive caveat to that. If we have common tax rates, we should also surely have common federal standards of living.
That means railways and hospitals in France can’t be any better than those in Ireland. And if they are, we need a way to bring them into synchronicity.
It means that if Paris, Amsterdam and Milan have built-in geographic or infrastructural advantages, Dublin, Lisbon and Helsinki need to have something of equivalent attraction that can give us a level playing field. You can’t be a socialist with taxes but a ruthless capitalist with economic and social opportunity.
Ironically, this has always been at the heart of the European project. Ireland has been a big beneficiary of it, from Albert’s famous eight billion in the early 1990s (when we were still poor) to all of those blue ‘with funding from…’ roadsigns that became a symbol of economic progress here.
But the politics has become a lot more factional. Perhaps the Commission considers us now to be rich enough. Even if that’s true, the Apple tax case suggests that overreaching into state aid rules may ultimately be dismissed as “political crap”.
Dixon faces tough call on data
NOBODY panic. Despite the Schrems judgment on Facebook, you can still email people, make Zoom calls and sign contracts through the cloud using Microsoft cloud services.
At least you can for now.
But watch out: that position may not indefinitely hold as is. What the European Court of Justice declared last week could be the beginning of a complete realignment in transatlantic data flows. It might mean that big firms such as Facebook, Google and Microsoft put more emphasis on European data centres. It might even be technically possible for these giants to try to contain all of the processing of EU citizens’ data on those servers. But it seems like a very difficult task, in the short-term anyway, for a company like Facebook to neatly segregate everything geographically with firewalls between Europe and the US. (One solution might be to centre its data processing in Europe and interact with US data here, rather than some EU users’ data going over there for processing.)
But whatever Mark Zuckerberg or Sundar Pichai might be feeling, spare a thought for Helen Dixon. Hers is now the role of someone who has to tell half the internet whether or not they can interact with each other any more. And if so, under what new rules. This isn’t a role that she or anyone in her office has ever relished. Despite what the loudest privacy campaigners say, this is a loaded geopolitical environment. Dixon’s predecessor, Billy Hawkes, once told me that he didn’t feel empowered to make such calls due to the extraordinary trade and political consequences they would have. But the European Court of Justice basically ordered Dixon to take the reins on it.
Whatever Dixon’s next steps, it will now look ridiculous if Ireland does not substantially increase the DPC’s headcount and resources. That office has way too much on its plate for the budget it has. It’s time to step things up.
The way that Europe helped to load Ireland with crippling debt during the 2008 economic crash is often brushed over