It looks like the European Commission (EC) will rule against Apple and Ireland’s tax arrangement. If the European Union (EU) bullies Ireland (via the EC or other proxy)—and basically rules that Ireland doesn’t have the sovereign right to set its own tax rates—there is some chance it could be a wedge issue that pushes Ireland to decide to leave the European Union.
So while I’m far from an expert on EU tax laws, I’ve talked with some of my more learned EU friends to get a sense of what is going on. The rough issue is that the EC doesn’t like how low Ireland set its tax rates. These low tax rates for tech companies have resulted in quite an economic boom for Ireland, making it the “Celtic Tiger” of the region. Needless to say, Ireland isn’t likely to be pleased with the EC telling it to change its tax rates, which may interfere with Ireland’s relatively good economic performance.
The EU position, again in rough form, seems to be that member states agree not to provide anti-competitive subsidies to companies or industries, and as a member, Ireland has agreed to that. But this is where things get a bit murky in what constitutes a “subsidy.” Some in Ireland might say any negative tax rate, (i.e., not only does the company/industry not pay taxes, but it gets money from the government) is a clear subsidy.
The EU and others will say if a tax rate on a company or industry is dramatically lower than other countries, even though it still taxes that company (e.g., say Apple gets a 2% tax rate when other countries in the EU charge a 25% tax rate), well then, that’s a subsidy.
I think if I were in Ireland, I would have the view, as long as the tax rate is not below 0%, it has the right to set whatever tax rate it wants. After all, what’s more of a sovereign act than a country setting its own tax rate? And some are already charging that the EC is abusing its own rules by finding against Apple and Ireland on this issue.
Beyond the mire of EC/EU tax/law issues, there is a more understandable issue that may act to anger Ireland, namely: That other countries in the EU cannot run their governments as efficiently with as low a tax rate should not be the burden of Ireland. This gets into Ayn Randian types of philosophical issues.
If government A can run itself perfectly fine at a 2% tax rate, and government B is less efficient and cannot pay its bills with a 25% rate–why should government A be punished and brought down to operate like that of the lowest common denominator as a way to prop up government B’s inefficiencies?
If Ireland is close to the composition of Northern Ireland, which voted to remain in the EU by a slight 55.8% majority in the Brexit referendum, Ireland may well be pushed enough by this to decide that such onerous EU policy encroaches too far on its sovereignty.
And if Ireland leaves the EU, there is a higher chance that more EU countries will domino, and with that, Apple may be the catalyst to bring about the collapse of EU.