In 2016, the EU Competition Commissioner ordered Ireland to recover up to a record €13 billion in back taxes from Apple. After Ireland launched an appeal, the EU countered with legal action in October over Ireland’s failure to pay back the taxes.
Apple recently announced that it will pay $38 billion in U.S. tax on its overseas cash but even still, the EU is firmly committed to the 2016 ruling that Ireland must pay:
“The Commission’s 2016 state aid decision found that, over many years, tax rulings issued by Ireland had allowed Apple to pay less tax on profits recorded in Ireland than other companies subject to (the) same national taxation laws. This gave Apple an illegal advantage in breach of EU state aid rules, which must now be recovered by Ireland – nothing has changed in that regard.”
Yet despite it’s hardline against Ireland, it would seem the EU is not as strong with some of the other EU Member States. Earlier this month, in a speech in the Strasbourg chamber, Irish Prime Minister Leo Varadkar made it clear that Ireland’s headline rate of corporate tax was certainly lower than that in many EU states, but its effective rate was higher than some of them:
“Countries like France have a high corporation tax on paper, but they have so many exemptions and different ways not to pay your tax that, according to the OECD, their effective tax rate is lower than ours.”
His concerns may seem to be accurate as Hungary and Bulgaria are in the process of reducing their corporate tax rates to levels lower than Ireland’s and France, has introduced loopholes that now make its effective rate for many companies and sectors lower than Ireland’s.
Ireland has argued that if the EU wants to get serious about rules against tax avoidance, then it’s better to adopt the OECD global rules, rather than targeting smaller economies. By working alone to target tax loopholes, Europe risks putting itself at a disadvantage to rivals such as the United States, Japan or post-Brexit Britain.
Although Varadkar has given his commitment to the EU, the EU runs the risk of pushing Ireland to breaking point. Lower corporate tax rates is what makes the small Irish economy attractive to big businesses like Apple and the EU is too fragile at this stage to risk angering Ireland.