EDITORIAL – Yet another Brussels blunder

“Even by the usual Brussels standards of economic malpractice, Tuesday’s €13 billion (US$14.5 billion) tax assault on Apple is something to behold. The European Commission decided that Dublin’s application of Irish tax law to an American company violated European antitrust rules. Orwell would understand.”

Wall Street Journal editorial board, “Europe’s Apple Tax Ambush,” Aug. 30, 2016

It’s hard to imagine a more perfect introduction to a more distasteful state of affairs.

Simply put, we agree with nearly all of the points made by the Wall Street Journal editorial board in its recent column on the European Commission’s attempt to undermine the sovereignty of Ireland and its legal arrangements with the Apple corporation. As the Journal observes, “Then again, this case isn’t about tax law. It’s about tax politics, and in particular the bureaucratic and left-wing frustration that low-tax governments are using normal accounting principles to deny high-tax governments more revenue booty.”

From one financial services-dependent jurisdiction to another, we in the Cayman Islands can certainly commiserate with the frustration that people in Ireland may feel at the latest economic assault from Brussels. Perhaps not since Attila the Hun plundered Europe has there been such a shameless invasion into the affairs of a sovereign nation.

It is almost unimaginable that a Brussels-based appointed “Competition Commissioner” (what on earth is a Competition Commissioner, and why would anyone want one?) would try to reach across the borders of Ireland and override decades-old decisions made by a democratically elected government, particularly ones that have proved so, dare we say, fruitful to the people of the country.

Let’s be clear here: Apple and Ireland, with eyes wide open and surrounded by lawyers, signed a legal and binding agreement. Our view (and theirs) is that it cannot be undone or overridden by a Brussels bureaucrat.

Appearing in today’s Compass is an opinion column written by eminent economist Richard W. Rahn (who is an editorial director of our sister publication Cayman Financial Review).

Dr. Rahn writes, “Forty years ago, Ireland was the poorest country in the EU; now it has the highest per capita income in the European Union, next to Luxembourg. The Irish wisely decided that the way to improve their people’s lives was by adopting economic policies that would lead to high growth. […] The strategy worked extremely well. Businesses flocked to Ireland with its pro-business policies. Employment and real incomes soared.”

And now the European Commission apparently wishes to undo Ireland’s hard work and reverse its successes, all in the name of “competition.”

Bringing this a bit closer to home, the U.K.’s Daily Telegraph aptly characterized the European Commission’s Apple action as “a textbook example of what is wrong with the EU, both economically and politically.”

In the opinion of the Daily Telegraph’s editorial board, since the June Brexit referendum, European officials have demonstrated the falsity of many of the “Remain” camp’s arguments, particularly the central tenet that a vote for “Leave” was a vote against “economic openness.”

According to the Daily Telegraph, “Indeed, the EU has done the opposite, showing that it is instinctively opposed to the free-trade and pro-business policies that are the best way to deliver prosperity, freedom and fairness.”

We’ll end this editorial by citing a passage from one of our own, which appeared in the Compass in November 2014 after European Commission President Jean-Claude Juncker, of all people, came under fire for deals made over the years by his Luxembourgian government and international companies:

“This Editorial Board supports Mr. Juncker and Luxembourg … based on the following principle: Every country must be able to write and enforce its own tax laws, without external interference, and without being compelled to act as another nation’s collection agency.”

What’s good for Luxembourg is good for Ireland, and what is good for Ireland is good for Europe, for Cayman, and for the rest of the world.

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  1. I do think this editorial is, in part disingenuous and does show a lack of understanding of the wider implications for the European Union.
    The EU is an agreement which the Irish Government both went into “with eyes wide open” and have, through their commercial relationship with Apple and others, where they provided tax incentives for these business to be, at least in title based there, reduced significantly the taxes payable in those countries where Apple (and others) operate.
    Amazon is another who have a similar deal with Luxembourg – they trade in the UK (and France, etc.) but pay very little in the way of taxes in those countries as they financially base themselves in Luxembourg where the Luxembourg authorities have given them a ‘sweetheart’ deal.
    Ireland deliberately offered reduced tax to Apple and others to attract them, receive substantially more tax than they would have done if they simply taxed these companies on their operations in Ireland, and substantially reduced the tax receivable in those countries where Apple does operate. You might want to consider how much tax Ireland received from Apple viz a viz Apples trade in Ireland compared to tax paid in the UK where Apple sells many times as many phones, computers and tablets than in Ireland. Why should the UK taxpayer be disadvantaged?
    And you are right to point out how Ireland has now the highest per capita income in the EU especially as they were significantly bailed out by the EU when their banking system collapsed. Their comparative wealth has not come about because Ireland is producing more goods, it has come about because they have been financially savvy and have disadvantaged those who looked after them in their hour of need.
    Unfortunately, this is where the Cayman Islands falls foul, where they allow companies (how many tens of thousands are based here?) to benefit from a no tax situation in order to avoid taxes in the countries where they actually operate.
    I think, given the UK has decided to leave the EU, Cayman will be breathing a sigh of relief that the nasty Brussels bureaucrats wont come hunting them but I think you can rest assured that the UK, post Brexit will want to ensure that companies who trade and operate in the UK pay their fair share of taxes and that might well have a long term impact on tax free havens such as CI.

    • Sorry if you misunderstood, Jay, but I wasn’t directly comparing Apple’s situation in Ireland with Cayman, just raising the issue of parasite states who benefit from drawing away tax revenue from the legitimate receiver.

      Just for information, on sales approaching £2bn in the uk, they paid just shy of £12m in corporation tax. Had it not had this financial, tax reducing arrangement with Ireland, it would have paid £400m tax in the UK.

      Finally, Facebook, minimises its taxes by paying itself ‘royalties’ and transferring the payments between companies. One of the companies is controlled from Cayman! at the same time it pays a pittance in taxes in the UK. Therefore ,y point that financial parasites like Cayman should watch, is not an unfounded warning