July 15, 2020 / 3:07 PM / a month ago

Breakingviews - Apple tax win flags EU problem of enemies within

The Apple Inc. logo is seen hanging at the entrance to the Apple store on 5th Avenue in Manhattan, New York, U.S., October 16, 2019.

LONDON (Reuters Breakingviews) - The victor of a battle can still end up losing the war. But Apple’s win in a legal case over $15 billion of back taxes that the European Commission ordered the tech giant to pay to Ireland flags the problems that Europe’s antitrust chief, Margrethe Vestager, faces in a bigger fight over corporate tax reform.

The European Union’s second-highest court on Wednesday rejected the commission’s order. It said that the EU executive did not clear the legal bar required to show that Apple had benefited from illegal state aid via two Irish tax rulings that artificially reduced its tax burden for over two decades – to as low as 0.005% in 2014. Vestager has yet to decide whether to appeal the ruling, but there was a lot riding on this case, especially because Ireland was fighting at Apple’s side and against her.

The alliance between the company and the country may seem odd given the coronavirus pandemic has blown a gaping hole in Ireland’s finances. The budget deficit is expected to soar to as much as 30 billion euros, or 10% of GDP, this year. But Ireland’s 12.5% corporate tax rate is a draw for foreign companies like Apple, Facebook and Twitter. They employ one in 10 people in the country, often in high-paid jobs that have so far proved more resilient to the crisis. The side that Dublin picked shows that low-tax EU countries will be loath to jeopardise employment and their long-term appeal to foreign companies.

This means that Vestager will face stiff internal resistance from within the EU to any attempt to impose a region-wide digital tax, as well as fierce pushback from U.S. President Donald Trump’s administration. Washington last month suggested a pause in the Organisation for Economic Co-operation and Development talks to reach a global accord on taxing digital services. While an EU-level proposal would allow European countries to push ahead regardless, Ireland may make even a regional accord difficult to achieve. With allies likes these, Apple and other tech giants have a hope of winning the war as well as the battle.

Breakingviews

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