(Bloomberg) – It wasn’t supposed to be that way for Margrethe Vestager, the European Union’s chief competition officer who made a name for herself as Silicon Valley’s worst nightmare.
Her request to Apple Inc. to return a record € 13 billion ($ 14.9 billion) in state aid from Ireland in 2016 sealed her reputation as the world’s most feared antitrust enforcer.
But the iPhone maker’s judicial victory on July 15, overthrowing the decision, risks leaving its crusade against unfair tax deals. Follow separate criticism that the EU’s massive antitrust fines for Google have made little difference.
How you react now will define your attempts to ensure that some of the world’s top companies pay a fair share of taxes and that the US tech giants don’t abuse their power as they become increasingly dominant. .
“This is a painful defeat” for Vestager after she “prioritized tax decisions under state aid rules,” said Annabelle Lepiece, CMS attorney, noting that this week’s reversal comes “immediately after another defeat. involving Starbucks. ” Tax treatment of Corp. in the Netherlands.
While she’s been portrayed in social media cartoons as a Viking warrior with an ax, Vestager is a mild-mannered Dane who calmly rejects angry presidential tweets and complaints from Apple CEO Tim Cook that her decisions are “political trash”.
Fair treatment
His motive, he says repeatedly, is to ensure fair treatment and to ensure that all companies face the same tax rules. Their method was to implement EU state aid laws to pursue secret preferential deals that big business often reach with tax authorities.
“The only consolation here is that the court agrees with us that we can also use state aid tools to analyze state tax aid,” Vestager said at an online event on Thursday. “It was never like this that state aid also grants us tax justice as such. Of course, we need to change the legislation and implement it. “
A team of EU antitrust investigators, known as the Tax Planning Task Force, have approached Amazon.com Inc., Starbucks, Nike Inc. and Ikea over tax deals, known as tax rulings, which they reached with Luxembourg or the Netherlands. .
Along with Ireland, where Apple’s European headquarters are located, the three countries have attracted many multinationals that switch profits between units. Ireland has become especially a favorite for the U.S. tech giants, lured by a low corporate tax rate that is often criticized by the larger European countries.
What appeared to be Vestager’s main blow was to attack the tax arrangements of individual companies and push countries to change tax rules. She gleaned progress that years of EU governments had not made. Until recently, taxation was a taboo subject among EU nations, and any one of them, often Ireland or the United Kingdom, could threaten a veto on any effort to push for more uniform rates or treatment.
Despite the defeat, Vestager promised not to give up taxes, although he did not say whether the commission would assume its right to appeal.
His team “will continue to analyze aggressive tax planning measures under EU state aid rules to assess whether they result in illegal subsidies,” he said in a statement shortly after the ruling.
“If member states grant tax advantages to certain multinational companies that are not available to their rivals, this hurts fair competition in the EU,” he said. “It also deprives the public purse and citizens of much-needed investment funds, the need for which is even more acute in times of crisis.”
The court ruling forces the EU to make some difficult decisions. Winning an appeal could be difficult after the lower court cited multiple errors in his work. You could try re-investigating Apple’s tax matters in Ireland to correct those mistakes. But that may not allow you to claim another massive back tax order.
Regulators were unable to demonstrate that Ireland’s tax treatment of Apple was an unfair subsidy and were wrong to discover that Apple’s Irish branches were responsible for the profits it made in Europe, the EU court said. The judges noted that it was clear that research and development, new product strategies and distribution in Europe were carried out from Apple’s Cupertino headquarters in California.
That means that the profits attributed to the Irish branches, the profits used to calculate some 13 billion euros in unpaid taxes, can be much lower and any new refund order may not capture as many holders. EU officials may also have to work harder to demonstrate that tax deals violate subsidy rules.
Lawyers pointed to a few crumbs of comfort after the ruling.
While the ruling is “a major setback for the commission,” “it generally does not question its approach to tax decisions or state tax aid,” said Alfonso Lamadrid, a Brussels-based Garrigues lawyer. “However, going forward, it will be necessary to carry out a deeper analysis of all relevant circumstances and avoid relying on assumptions.”
Much harder
The court sets a large burden of evidence for regulators to demonstrate that a tax measure violates state aid rules, said Totis Kotsonis, an attorney for Pinsent Masons. But that does not mean that the fight against unfair tax arrangements will disappear.
“It just got a lot more difficult,” he said.
Meanwhile, Vestager keeps pace with taxes and fair treatment, calling on governments to ban financial support for companies with tax havens, which could exclude them from some € 3 trillion in aid distributed during the pandemic.
Its labor surveillance grants “must go hand in hand with a change in corporate philosophies and the correct legislation to address gaps and ensure transparency,” he said. “We have already made a lot of progress at national, European and global levels.”
(Updates with Vestager’s comment in the eighth paragraph)
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