Read more: Are tax rates primarily determined by war?
On Tuesday, the European Commission ordered Apple to pay up to €13bn in Irish taxes. It had found that the US technology giant paid a rate of tax between 0.0005 per cent and 1 per cent on its European profits over the last decade, while the usual rate of corporation tax in Ireland is 12.5 per cent. EU “member states cannot give tax benefits to selected companies—this is illegal under EU state aid rules,” said European competition commissioner Margrethe Vestager. Both Apple and the Irish state are to appeal the decision.
Apple has warned that multinational investment in Europe could be hit by the commission’s move. In a letter to Customers Tim Cook, Apple’s chief executive, said “the most profound and harmful effect of this ruling will be on investment and job creation in Europe. Using the commission’s theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed.”
The question that presents itself is: if corporations do leave the European Union as a result of clampdowns like this, will they see post-Brexit Britain as the perfect place to set up shop? A panel of contributors answer.
Not a viable strategy
Jonathan Portes, Fellow, National Institute of Economic and Social Research
The UK has long argued that a properly functioning Single Market requires rules to restrict "state aid"—artificial government subsidies to the private sector. Not all tax competition between, or indeed within, countries fits that bill. But it's hardly a secret that the Irish tax regime functions as a form of state aid, and the EU's determination to tackle it should be welcome to countries like the UK. The idea that a large, developed economy with an ageing population and an expensive welfare state will benefit from a "race to the bottom" on corporate taxation isn't consistent either with economic theory or common sense. That's true whether or not we are in the EU.
As for the UK replacing Ireland as the destination of choice for multinationals seeking lower corporation tax—why on earth would the EU, post-Brexit, allow such companies access to the Single Market on the same terms as now? And, given the current uncertainties over the UK’s trading relationship with the remaining EU, why would such companies take the risk of locating to the UK? The UK can continue to be a relatively attractive country for foreign direct investment post-Brexit—but becoming an offshore tax haven is unlikely to be a viable strategy.
A compelling alternative
Diego Zuluaga, Financial Services Research Fellow at the Institute for Economic Affairs
With the European Commission increasingly hostile towards low-tax jurisdictions such as Ireland, multinationals may well decide to move some operations outside the EU. A newly “Brexited” UK with a rate of corporation tax at or below 20 per cent would be comparably well-placed to acquire some of that dislocated activity, given Britain’s proximity to Europe, her reliable legal system and connections to the rest of the world.
One should keep in mind that firms will tend to relocate outside the EU only if they can conduct business with EU countries from their new location under similar conditions. Thus the UK will make itself attractive to firms to the extent that it manages to keep reasonably open trade with Europe. Further, if the EU deemed corporate taxes in the UK to be too low, it could decide to label Britain a tax haven and slap a “diverted profits tax” or other penalty on profits allocated to British subsidiaries. This would defeat the purpose of firms’ relocation to the UK.
Nevertheless, if the EU chooses to hurt itself through misguided anti-business policies, then a UK that offered legal certainty and a friendly environment would make a compelling alternative.
Yes—but we need more
Tim Knox, Director of the Centre for Policy Studies
Tax planning is legitimately a top concern of all large companies. Corporate tax rates differ widely and it cannot be a surprise if companies choose to locate their activities in those countries which have the most favourable rates.
That said, certainty over tax is also important. And the uncertainty caused by the EU ruling on Apple is likely to raise some concerns over whether Ireland can continue to offer such an attractive tax regime, particularly for those companies which might currently be considering locating in Ireland.
So the ability to provide a reasonable and certain tax regime could therefore prove to be an advantage to the UK post-Brexit. But for that to be effective, it is essential that the government also implements market-friendly supply-side policies in other important areas such as infrastructure, skills, immigration and tax simplification. Above all, it must demonstrate that Brexit does not mean retreating to the mythical little Englander bastion sometimes depicted by those who were on the "Remain" side of the argument but creating the conditions in which a buccaneering, creative and entrepreneurial nation with a global outlook can thrive.
We must not put capital before people
Richard Murphy, Director of Tax Research LLP
The EU’s challenge to Ireland and Apple should be seen in two ways. First, it’s a challenge to the many companies that think themselves above the law as Apple must have done by thinking it acceptable that two of its companies be located nowhere and so pay tax to no state.
Second, it’s a challenge to the mentality of the tax haven state that thinks it has a higher duty to global capital than it has to its own population. Ireland has evidenced this by saying it will refuse the €13 billion tax payment the EU has ordered should be paid.
Before the UK accepts companies trying to do similar things it has, then, to ask whether it puts capital before its people, multinational corporations before UK business and being a pariah state above international order. In the current political environment I would have thought the answers should be obvious.
On Tuesday, the European Commission ordered Apple to pay up to €13bn in Irish taxes. It had found that the US technology giant paid a rate of tax between 0.0005 per cent and 1 per cent on its European profits over the last decade, while the usual rate of corporation tax in Ireland is 12.5 per cent. EU “member states cannot give tax benefits to selected companies—this is illegal under EU state aid rules,” said European competition commissioner Margrethe Vestager. Both Apple and the Irish state are to appeal the decision.
Apple has warned that multinational investment in Europe could be hit by the commission’s move. In a letter to Customers Tim Cook, Apple’s chief executive, said “the most profound and harmful effect of this ruling will be on investment and job creation in Europe. Using the commission’s theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed.”
The question that presents itself is: if corporations do leave the European Union as a result of clampdowns like this, will they see post-Brexit Britain as the perfect place to set up shop? A panel of contributors answer.
Not a viable strategy
Jonathan Portes, Fellow, National Institute of Economic and Social Research
The UK has long argued that a properly functioning Single Market requires rules to restrict "state aid"—artificial government subsidies to the private sector. Not all tax competition between, or indeed within, countries fits that bill. But it's hardly a secret that the Irish tax regime functions as a form of state aid, and the EU's determination to tackle it should be welcome to countries like the UK. The idea that a large, developed economy with an ageing population and an expensive welfare state will benefit from a "race to the bottom" on corporate taxation isn't consistent either with economic theory or common sense. That's true whether or not we are in the EU.
As for the UK replacing Ireland as the destination of choice for multinationals seeking lower corporation tax—why on earth would the EU, post-Brexit, allow such companies access to the Single Market on the same terms as now? And, given the current uncertainties over the UK’s trading relationship with the remaining EU, why would such companies take the risk of locating to the UK? The UK can continue to be a relatively attractive country for foreign direct investment post-Brexit—but becoming an offshore tax haven is unlikely to be a viable strategy.
A compelling alternative
Diego Zuluaga, Financial Services Research Fellow at the Institute for Economic Affairs
With the European Commission increasingly hostile towards low-tax jurisdictions such as Ireland, multinationals may well decide to move some operations outside the EU. A newly “Brexited” UK with a rate of corporation tax at or below 20 per cent would be comparably well-placed to acquire some of that dislocated activity, given Britain’s proximity to Europe, her reliable legal system and connections to the rest of the world.
One should keep in mind that firms will tend to relocate outside the EU only if they can conduct business with EU countries from their new location under similar conditions. Thus the UK will make itself attractive to firms to the extent that it manages to keep reasonably open trade with Europe. Further, if the EU deemed corporate taxes in the UK to be too low, it could decide to label Britain a tax haven and slap a “diverted profits tax” or other penalty on profits allocated to British subsidiaries. This would defeat the purpose of firms’ relocation to the UK.
Nevertheless, if the EU chooses to hurt itself through misguided anti-business policies, then a UK that offered legal certainty and a friendly environment would make a compelling alternative.
Yes—but we need more
Tim Knox, Director of the Centre for Policy Studies
Tax planning is legitimately a top concern of all large companies. Corporate tax rates differ widely and it cannot be a surprise if companies choose to locate their activities in those countries which have the most favourable rates.
That said, certainty over tax is also important. And the uncertainty caused by the EU ruling on Apple is likely to raise some concerns over whether Ireland can continue to offer such an attractive tax regime, particularly for those companies which might currently be considering locating in Ireland.
So the ability to provide a reasonable and certain tax regime could therefore prove to be an advantage to the UK post-Brexit. But for that to be effective, it is essential that the government also implements market-friendly supply-side policies in other important areas such as infrastructure, skills, immigration and tax simplification. Above all, it must demonstrate that Brexit does not mean retreating to the mythical little Englander bastion sometimes depicted by those who were on the "Remain" side of the argument but creating the conditions in which a buccaneering, creative and entrepreneurial nation with a global outlook can thrive.
We must not put capital before people
Richard Murphy, Director of Tax Research LLP
The EU’s challenge to Ireland and Apple should be seen in two ways. First, it’s a challenge to the many companies that think themselves above the law as Apple must have done by thinking it acceptable that two of its companies be located nowhere and so pay tax to no state.
Second, it’s a challenge to the mentality of the tax haven state that thinks it has a higher duty to global capital than it has to its own population. Ireland has evidenced this by saying it will refuse the €13 billion tax payment the EU has ordered should be paid.
Before the UK accepts companies trying to do similar things it has, then, to ask whether it puts capital before its people, multinational corporations before UK business and being a pariah state above international order. In the current political environment I would have thought the answers should be obvious.
