Apple tax decision European Commission implied powers – Hein Roelfsema

Although last week’s taxation decision by the European Commission (EC) was widely anticipated, the €13bn size of the Apple ruling last week caused a shockwave within the European Union (EU) as well as between the EU and the US. As a university professor at the start of the academic year, the Apple case provides for a great introduction to international business. Apple is the prime outsourcing pioneer, its market entry organization non-standard, and its multinational financing and transfer pricing is complex. The case opens up a discussion on how to deal with the new networked technology multinationals in a globalising world, the coordination of competition policy, and modern trade policy issues including the Transatlantic Trade and Investment Partnership (TTIP).

For those who missed it, the Apple case is about whether the Irish government offered allegedly illegal state aid in the form of favorable rulings (forward-looking tax deals) to attract Apple’s European operations. Nearly all profits across the internal EU market may accrue in Ireland through a sales organisation based in Ireland. Combined with Ireland’s lenient regulation with respect to moving profits to tax havens, Apple effectively pays no taxes in the EU. From a legal perspective, the case boils down to the question of whether Apple has received greater benefits than other firms in Ireland, which will be difficult to prove. Judging by the basis of the reactions of my colleagues in the law faculty, it is quite unlikely that the European Commission will ultimately win the appeal case. But in the meantime, Apple has to park the €13Bn.

The broader discussion of the Apple case is on the adverse effects of the EC’s actions for TTIP and the OECD’s progress on transfer pricing guidelines. To me, the discussion should start with a return to a more fundamental question: the legitimacy of the EC and EU to politically represent member states in the global arena. This made me go back to one of the great old theories of European integration: Helen Wallace’s theory of “implied powers”. This concept explains the effects of multilevel policy making on the dynamics of (formal) legitimacy at each level. For example, when the EC has powers with respect to the free flow of goods in the internal market, it should have these powers as a representative of the EU in the GATT. By contrast, if the GATT expands to include services, the EC as a representative in the GATT should have these powers internally to implement them in the single market. The interaction and clever management of the interaction of levels creates expanding implied power.
The key question is whether the EC is using the Apple case to create legitimacy dynamics in the field of international competition policy and trade policy in the modern tech-driven world. If the answer is yes (and for the moment I assume it to be so) then the question is whether this is justified. My answer is yes. At the core of the discussion on the future of Europe is a stronger focus on economic integration, subsidiarity, and flexible cooperation and away from political centralisation. “We” simply get irritated with Juncker’s prominence at the G20 discussing Syria and Russia. Or, as former Bank of England Governor Mervyn King stated in the Brexit campaign: If you just want to play Bridge, you hate it to be forced to be member of a tennis club for partners. Ultimately, we like Commissioner Vestager fighting the dominance of US tech firms and creating a strong single market, so as to generate European Unicorns. And to put pressure on the sleepy OECD and indecisive US policy makers to change their arcane corporate tax policies.


This entry was posted in Business economics, Economic reform, Economic regulation, Hein Roelfsema, International trade, Public policy, Taxation. Bookmark the permalink.

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