5 ms·

It is well understood that retroactive changes to the law are one of the worst things a legal system can do, which is why so many constitutions ban it and why o

It is well understood that retroactive changes to the law are one of the worst things a legal system can do, which is why so many constitutions ban it and why other countries (like the UK) have a strong convention not to do it. The US Constitution bans them explicitly. Yes, of course countries routinely do bad things and ignore convention and constitutional principles, but that doesn't make it suddenly OK. The low rate of corporation tax in Ireland is not really a loophole, it is a specific strategy to attract employers to a country that might otherwise not have much to offer, and it has worked fantastically well for them. This policy has been in place for decades and it is (or was) popular - the Irish prefer the jobs to the corporation taxes. What is the EU is doing here is trying to ban tax competition between countries on the grounds that if you don't charge much tax, you're offering illegal "aid". Beyond a strange interpretation of the word "aid" this is really a very serious problem - if the EU successfully forces countries to pick a single corporation tax rate across the bloc under the doctrine of illegal "aid", despite having no mandate to set tax policies, then what comes next? What if the French start arguing that countries with laxer worker rights than France are providing illegal state aid to their corporations? Zero-rating corporation tax is a perfectly reasonable policy for a country to have, there are plenty of economic arguments for it, and even if other countries might feel the outcome is unfair, well, so what? Competition is about different people making different tradeoffs and seeing what happens: if the Irish prefer to prioritise employment over collecting corporation tax (one of the hardest taxes to collect anyway), why should they be prevented from doing so?

Xixi 10y ago
The corporation tax rate in Ireland is 12.5%, and the rate applied to Apple was (eventually) 0.005%: it's the delta between Irish own tax rate and the one applied to Apple that is deemed illegal according to this EU ruling. If Ireland want a 0% tax rate for all corporations, as far as I know they are allowed to do it. They just cannot afford it.
- zigzigzag 10y ago
  That's the EU's interpretation of the figures, but that's assuming Ireland should have taxed all revenue across all of Europe. The Irish tax system doesn't work that way though and the Irish government is stating flat out that there were no special deals: the apparently "low" rate is because the EU isn't calculating taxable income the same way Ireland does.
  - deleted 10y ago
    [deleted]
friendzis 10y ago
I do not encourage retroactive law changes, but they do happen. Anyway, I think you miss the point (which was not communicated at all). Long term gains are very hard to pick over short term gains, especially if that would incur some short term loss. The free market [long term] goal of EU can be roughly expressed as a fight for competition over monopolies. It may look extremely lucrative to lower taxes for a corporation to pay significant lump of money (create jobs, capital movement, etc) even at low rate, than to let the corporation set its foot at another country. As it was stated in other comments, a multinational naturally attempts to increase profits by any means and incorporating at different location with significant tax discount is one of the ways. Although, globally (or EU wise) this is simply tax discount for a corporation that is already pretty much resembling a monopoly. Think about the EC decision in this light.
phab 10y ago
You have missed the point - this is about different companies within one state being charged different rates of corporation tax, not different states across the EU charging different rates of tax. > if the EU successfully forces countries to pick a single corporation tax rate across the bloc The EU is forcing no such thing. It is forcing countries within the bloc to not give any one company special treatment. The distinction is critical.
- zigzigzag 10y ago
  I disagree that any such distinction exists though. Governments routinely set taxes and tariffs such that they apply to one industry and not another, or put another way, one set of companies pays lower taxes than others do. The oil industry is famously heavily taxed, that does not imply that hydropower companies are receiving illegal state aid. If a country can't charge different tax rates to different companies based on their own arbitrary policies, then they have lost a significant component of their own sovereignty. If the EU wants its members to give up tax policy to Brussels then they should propose a treaty change and make corporation tax a competency of Brussels, then it can be the EU that decides which companies pay more or less tax according to their own political priorities. But they haven't done that and I bet they won't, because they know that they'd lose any such argument. Hence, the back door approach.
  - germanier 10y ago
    EU governments, including the Irish one, are free to set different tax rates for different industries. (They are not free to set tariffs but that is because tariffs are a core EU competency as defined in the treaties.) Member states are not free to set different tax rates for different companies. This is part of the deal of joining the EU and has been part of the treaties since the beginning. The only surprising thing here is that it took so long for the EC to stop this.
    - quantgenius 10y ago
      Ireland did NOT set a different tax rate for Apple or for a specific industry that was basically just Apple. Apple simply structured itself to minimize taxes taking into account the laws at the time. Any company was free to do the same and many did. The structure is so common that there are even two terms that are in standard use to describe this structure, the Double Irish and the Double Dutch. The EU did not suddenly discover what Irish tax laws were. They were legislated in an open process and were public records and were trumpeted loudly by the Irish government to attract investment. This state of affairs existed for decades. The EU simply wants to get its grubby little hands on Apple's money so they can use it for more dole-outs to friends of the bureaucrats and also use this as a precedent so they can expand their powers into areas where their power has been explicitly curtailed by treaty. Apple made a business decision to invest in the EU based in part on the tax rates at the time which went into it's calculations of expected rate of return. Of course they probably did much better than what they expected, but many who made similar decisions lost money too. If tax laws are subject to change retroactively, investors have to start taking uncertainty about the tax rate and the expected rate of return into account and will demand a (potentially much) higher rate of return to invest. This is why it's so hard to attract investment in countries without stable governments and a strong rule of law even though the purported rate of return is much higher. If this continues it will lead to further slowdown in the EU economy. The current slowdown is not apparent to EU citizens only because the market is not charging the EU a credit risk premium on EU bonds and so EU governments are still able to fund public benefits by borrowing. This is something that will change quickly and lead to a Greece like situation if the EU starts acting in this manner. As an outside observer, I did not think Brexit was a great idea but this event frankly is a very good argument for why more countries should consider EUExit and/or the national governments need to figure out how to defang the EU. The EU was supposed to be about free movement, no "TARIFFS" as in impediments to TRADE within the block and a single currency. What it seems to have turned into is unelected bureaucrats in Europe dictating to elected national governments what their tax policy must be.

Xixi 10y ago

The corporation tax rate in Ireland is 12.5%, and the rate applied to Apple was (eventually) 0.005%: it's the delta between Irish own tax rate and the one applied to Apple that is deemed illegal according to this EU ruling. If Ireland want a 0% tax rate for all corporations, as far as I know they are allowed to do it. They just cannot afford it.

zigzigzag 10y ago
That's the EU's interpretation of the figures, but that's assuming Ireland should have taxed all revenue across all of Europe. The Irish tax system doesn't work that way though and the Irish government is stating flat out that there were no special deals: the apparently "low" rate is because the EU isn't calculating taxable income the same way Ireland does.
- deleted 10y ago
  [deleted]

friendzis 10y ago

I do not encourage retroactive law changes, but they do happen. Anyway, I think you miss the point (which was not communicated at all). Long term gains are very hard to pick over short term gains, especially if that would incur some short term loss. The free market [long term] goal of EU can be roughly expressed as a fight for competition over monopolies. It may look extremely lucrative to lower taxes for a corporation to pay significant lump of money (create jobs, capital movement, etc) even at low rate, than to let the corporation set its foot at another country. As it was stated in other comments, a multinational naturally attempts to increase profits by any means and incorporating at different location with significant tax discount is one of the ways. Although, globally (or EU wise) this is simply tax discount for a corporation that is already pretty much resembling a monopoly. Think about the EC decision in this light.

phab 10y ago

You have missed the point - this is about different companies within one state being charged different rates of corporation tax, not different states across the EU charging different rates of tax. > if the EU successfully forces countries to pick a single corporation tax rate across the bloc The EU is forcing no such thing. It is forcing countries within the bloc to not give any one company special treatment. The distinction is critical.

zigzigzag 10y ago
I disagree that any such distinction exists though. Governments routinely set taxes and tariffs such that they apply to one industry and not another, or put another way, one set of companies pays lower taxes than others do. The oil industry is famously heavily taxed, that does not imply that hydropower companies are receiving illegal state aid. If a country can't charge different tax rates to different companies based on their own arbitrary policies, then they have lost a significant component of their own sovereignty. If the EU wants its members to give up tax policy to Brussels then they should propose a treaty change and make corporation tax a competency of Brussels, then it can be the EU that decides which companies pay more or less tax according to their own political priorities. But they haven't done that and I bet they won't, because they know that they'd lose any such argument. Hence, the back door approach.
- germanier 10y ago
  EU governments, including the Irish one, are free to set different tax rates for different industries. (They are not free to set tariffs but that is because tariffs are a core EU competency as defined in the treaties.) Member states are not free to set different tax rates for different companies. This is part of the deal of joining the EU and has been part of the treaties since the beginning. The only surprising thing here is that it took so long for the EC to stop this.
  - quantgenius 10y ago
    Ireland did NOT set a different tax rate for Apple or for a specific industry that was basically just Apple. Apple simply structured itself to minimize taxes taking into account the laws at the time. Any company was free to do the same and many did. The structure is so common that there are even two terms that are in standard use to describe this structure, the Double Irish and the Double Dutch. The EU did not suddenly discover what Irish tax laws were. They were legislated in an open process and were public records and were trumpeted loudly by the Irish government to attract investment. This state of affairs existed for decades. The EU simply wants to get its grubby little hands on Apple's money so they can use it for more dole-outs to friends of the bureaucrats and also use this as a precedent so they can expand their powers into areas where their power has been explicitly curtailed by treaty. Apple made a business decision to invest in the EU based in part on the tax rates at the time which went into it's calculations of expected rate of return. Of course they probably did much better than what they expected, but many who made similar decisions lost money too. If tax laws are subject to change retroactively, investors have to start taking uncertainty about the tax rate and the expected rate of return into account and will demand a (potentially much) higher rate of return to invest. This is why it's so hard to attract investment in countries without stable governments and a strong rule of law even though the purported rate of return is much higher. If this continues it will lead to further slowdown in the EU economy. The current slowdown is not apparent to EU citizens only because the market is not charging the EU a credit risk premium on EU bonds and so EU governments are still able to fund public benefits by borrowing. This is something that will change quickly and lead to a Greece like situation if the EU starts acting in this manner. As an outside observer, I did not think Brexit was a great idea but this event frankly is a very good argument for why more countries should consider EUExit and/or the national governments need to figure out how to defang the EU. The EU was supposed to be about free movement, no "TARIFFS" as in impediments to TRADE within the block and a single currency. What it seems to have turned into is unelected bureaucrats in Europe dictating to elected national governments what their tax policy must be.