Purchasers of Apple products will be familiar with “sticker shock”, the feeling of surprise at seeing quite how much a product costs. This week, Apple executives must have experienced something similar, after the European Commission, part of the European Union, declared the company must pay back taxes to Ireland of €13bn (Dh53bn).
The reason for the decision is a complex story that goes back to 1991, when Apple Ireland its European headquarters, meaning that all its profits across the EU went through Ireland. The company negotiated a deal with Dublin that it would pay low tax rates because it was employing many people in the country. Now the EC has said that, because the deal only applied to Apple and not to other companies, it amounted to “illegal state aid”.
There are not many who will feel sympathetic to Apple – the company, after all, is sitting on at least US$230bn in cash reserves – but there is a serious issue that goes beyond one company and even one country. It is the same issue that other countries have with the European Union: interference in sovereign affairs. It is a big part of the reason why so many Britons voted for Brexit.
The EU doesn’t set tax rates nor collect tax, only national governments do that. Across the continent, corporate tax varies significantly, from a high of 33.3 per cent in France, to a low of 10 per cent in Bulgaria; most countries hover around 20 per cent. Ireland has the second-lowest at 12.5 per cent, although the accusation from the EC is that Apple was actually paying far less than this, barely half a per cent.
But countries have to remain competitive. Ireland has a relatively modest population of 4.5 million – the only way to compete for international companies to be based there, rather than in, say, Germany with a population of 80m, is to offer something different. Now the EC, which doesn’t collect tax revenue, wants to involve itself in what tax rates the country collects. Moreover, there is a question of legality. The taxes apply to the 10 years after 2003. Apple points out it paid all the taxes it was obligated to. It can hardly be asked, now that it has grown successful, to hand back its profits.
Of course there are pros and cons to joining a union such as the EU. But Brussels more and more involves itself in areas that should be the purview of national governments. It cannot interfere in such ways and then be surprised when countries want to leave.