Brussels seeks €1bn from Apple in tax dispute

APPLE will today be hit with a demand to repay more than €1bn (£850m) in unpaid taxes to the Irish state when the European Commission declares that its tax affairs in the country amount to illegal state aid.

The decision, which is likely to generate a fierce backlash from Dublin, Silicon Valley and Washington, will be Brussels’ biggest attack on alleged tax avoidance by US multinationals to date and is likely to trigger a quick appeal from both Apple and the Irish government.

Margethe Vestager, Europe’s competition commissioner, is expected to declare that two deals struck in 1991 and 2007 between Apple and the Irish state broke EU competition law, giving the iPhone maker a competitive advantage not enjoyed by others. Although the amount in question is unclear, it is expected that Apple will be ordered to pay more than €1bn in taxes to Ireland to account for the alleged shortfall. The commission is expected to recommend a figure, al- though it will be up to the Irish state itself to calculate one.

The company, which books its international sales in Ireland, allowing it to build up a $215bn (£165bn) overseas cash pile, argues that it should pay tax on its profits when it repatriates them to the US. The ruling follows a two-year investigation and a series of inquiries into alleged sweetheart deals between European states and American multinationals.

In an unprecedented attack last week, the US Treasury accused the European Commission of trying to act like a “supranational tax authority” and said its actions were undermining global tax reform. Matthew Lynn: Page 29

Paying too little tax. Invading privacy. Creating dangerous monopolies. EU officials never seem to run out of sticks with which to beat American multinationals – and they are getting increasingly aggressive in using them. So systematic has the harassment become that the US is now fighting back, accusing the Europeans or unfairly targeting its corporate giants.

That is wrong in itself – but it also has worrying implications for British businesses. Put simply, we’re next.

If the Americans are right – and they surely are – that the EU is turning into an inward-looking club, using tax and monopoly investigations as form of backdoor protectionism to discriminate against companies from outside the bloc, then once we are outside we are likely to be targeted as well. The likes of HSBC, Vodafone and Glaxo-Smith-Kline can expect to face bizarre forms of discrimination. We need to work out ways of standing up to that – by teaming up with the US, negotiating the right kind of Brexit, and developing other markets.

In the last week, the US’s patience with the EU’s aggressive attacks appears to have finally snapped. As a decision looms on the EU’s lengthy investigation into Apple’s tax arrangements in Ireland, in which it is today expected to have to pay billions in a settlement, the US Treasury accused the EU of trying to become a “supra-national tax authority”, and, in effect, of systematically discriminating against American businesses and in favour of its own.

The complaint is perfectly valid. The EU has clearly singled out the giants of American industry. From a ridiculously high-profile tax raid on Google’s office in Paris, to demands on the likes of Starbucks or Facebook or Amazon, to endless accusations that tech leaders are restricting competition, the EU has found a dozen different ways to undermine foreign competitors.

True, many American companies are hardly known for the enthusiasm for paying corporate taxes. But it is hard to see any other explanation apart from systematic discrimination to explain why they are targeted instead of European companies. Ikea, for example, has been widely criticised, at least on the Left, for its tax policies. According to a report by the Greens in the EU parliament, the company paid €1bn (£850m) less in tax than it should have done over the last six years by shuffling earnings between different subsidiaries – exactly the same thing the Americans are accused of.

But very little action has been taken against it. BNP Paribas had to pay an $8bn (£6bn) fine in 2014 for breaking sanctions, while Deutsche Bank paid a $500m fine for “fraudulent tax shelters” in 2010. None of those companies have been picked on by the EU – presumably because they are French and German and not American.

It is not just tax. The likes of Google and Amazon have been targeted for monopoly investigations, even though it is hard to think of any two companies that have done more to blow up cosy cartels than those two. One Socialist EU parliamentarian even wants to ban the wildly successful Pokemon Go (apparently it is an invasion of our privacy – and not just really annoying). And yet Volkswagen can systematically cheat on the diesel emissions of its cars, perhaps the most serious example of corporate wrongdoing of the last decade, and the worst the EU can do is set up a committee to ask for more information. It is not hard to work out what is going on. The EU, and the European parliament in particular, is latching on to whatever issues it can to discriminate against multi-nationals from outside the club – while allowing businesses from within the EU to get away with practically anything. It is a systematic form of back-door protectionism.

Here is the real problem, however. We are certainly next.

Once we are finally out of the EU, we can expect to see British multinationals routinely targeted by EU politicians as well. Don’t be surprised if we see HSBC’s tax payments under scrutiny, and certainly any units a City bank or fund manager operates in a tax haven. Vodafone’s mobile networks across Europe might suddenly turn out to be “dangerous”, or at least not meet the same standards as those run by Deutsche Telekom or France’s Orange. Glaxo-Smith-Kline’s drugs mysteriously won’t meet EU standards any more, and BP will no doubt be flouting environmental rules, unlike any of the European oil companies.

Increasingly that is how the EU operates. It doesn’t put formal tariffs in place, but through tax, competition and environmental law, it discriminates against companies that are not part of the club. Once we are on the outside, there is no reason to think we won’t receive the same treatment – indeed, so annoyed will many Brussels officials be by our departure, we may well get worse punishment. We are already seeing early signs of that with EU complaints over our planned “unfair” 15pc corporate tax rate.

We need to work out in advance how to stand up to that. There are three things we can do.

First, make sure that whatever exit agreement we finally negotiate includes plenty of safeguards against hidden protectionism. Deals such as the proposed Transatlantic Trade and Investment Partnership allow companies to take governments to court. Perhaps the UK- EU agreement, when it gets fleshed out, should include a clear clause stating that British companies won’t face discrimination over issues such as tax. If they do, they can take the EU to an impartial court and claim compensation.

Second, be willing to retaliate. If the EU starts picking on our big companies, then hit back with some measures of our own. Do we really want any VWs sold in this country until we can be absolutely sure that the company has changed its ways and stopped cheating on emissions tests? Is Ikea a proper corporate citizen while it shuffles assets from state to state? The UK is a hugely important market for many EU companies – there is no reason not to use that leverage.

Finally, team up with the Americans. They are finally making a stand against hidden protectionism – we should support them now rather than later.

There is no serious evidence to suggest the American companies pay less tax than European ones or that they are more monopolistic – in many cases it is just that they are more innovative. If we make it clear that we are on their side, and preferably include Japan and China as well, then that will be a more forceful case.

But perhaps the most important rule will be this. We need to be aware, as the American have now discovered, that the EU is fundamentally not interested in open global markets anymore. It is only interested in protecting its own, mostly declining economies – and we should concentrate on growing our exports elsewhere.