The EU responds to US challenges by fining Apple with €13 billion

Apple logoLast Tuesday, the White House and the US Treasury in concerted actions issued farfetched statements against the EU Commission. The EU executive’s decision ordered the US giant technology company Apple Inc. to pay additional taxes of up to €13 billion in Ireland. These instant and strong reactions clearly denote that the US sees this Brussels step as an answer to the American challenges against European icon firms like Volkswagen, Deutsche Bank, Bank BNP Paribas and others.

In May 2015 the latter French bank was fined with a monstrous penalty of $8.9bn in a settlement with the American authorities. The US Department of Justice accused the French lender of allegedly flouting the American sanctions imposed on Cuba, Iran and Sudan. Some months later the sanctions on Iran were eased, while in the case of Cuba the American administration was already paving the way to restore diplomatic relations with the Caribbean island.

Quid pro quo

The Americans continued their aggressive tactics against European multinationals. VW was forced to accept that it cheated the emission standards of its petrol engines in a settlement that may cost the leading EU car company tens of billions of dollars. It’s hard to believe that the US technical services, which tested the VW petrol engines for emissions were not aware of the existence of ‘deceitful software’ a long time ago, considering it as a controversial but at the limit acceptable feature. It seems that the Americans suddenly decided that this software was illegal.

Along the same lines, Washington has recently targeted the American subsidiary of Deutsche Bank. The repeated leaks to prestigious US Press groups about the ‘grave’ problems of the largest German lender are numerous and painful. They culminated to an International Monetary Fund report calling Deutsche the biggest risk in the global banking system.

Hostile Americans

In this way the Americans have destroyed the prospects of Deutsche to adequately recapitalize in the market. By the same token, they force the Berlin government to undersign the risks hidden in the books of the bank. In comparison, the US banks can choose what to disclose concerning the risks they hide in and off their balance sheets.

Against this background it seems that the EU has finally decided to retaliate by targeting the US multinationals which operate in Europe. Their most evident fissure offering the opportunity of reprisals are the tax agreements which a large number of American companies have concluded with some EU member states, mainly Ireland, Belgium and Holland.

Reprimanding the US multinationals

Last year, the EU Commission asked the Dutch authorities to recoup 20 to 30 million euro in unpaid taxes from the US coffee shop chain Starbucks. Then it was the Fiat-Chrysler Automobiles (FCA) tax agreement with Luxembourg. Again, Brussels asked the country’s authorities to charge the car maker with extra taxes of anything between €20 and €30 million.

Understandably, those are peanuts compared to last Tuesday’s Commission order to the Irish tax authorities, to recoup €13bn from Apple in unpaid taxes. In short, the game between Washington and Brussels has started to become too serious. Of course, the American giant company can very easily cover this extra tax charge, since it possesses an accumulated wealth of at least $200 billion in cash and readily tradable assets. But it simply won’t.

The same attitude is adopted by Ireland. The Irish minister for Finance Michael Noonan said his country will appeal to the European Court against the Commission’s decision. However, the case has triggered a political crisis in Ireland, with the opposition asking the government to recoup the money and spend it for the people. Even the junior government coalition party, the Independent Alliance, is not certain about the appeal.

Brussels knew a lot

There is a difference in this case though. It seems that the Commission has found cooperative interlocutors in the Irish ministry of Finance and has come upon telling details about the Tax Agreement between Apple and the Republic. According to Irish media, Apple is given the ability to transfer its profits from other EU or third countries to Ireland. Then again, Apple wasn’t even obliged to pay the very low by EU standards Irish tax rate of 12.5%.

This minimal Irish tax brake on profits has attracted strong criticism from other EU countries for unfair competition regarding the charm on foreign investments. In reality, it has made Ireland a real tax haven within Europe, not always entailing real investments and jobs. In some cases just an office in Dublin can ‘produce’ billions of surreal values and lawfully post unduly inflated balance sheets and taxable income, acting, in fact, as a money laundry.

Tax havens in Europe

In the case of Apple, the benefits for the company are even greater than that. The firm was and understandably still is able to transfer around two thirds of its global profits to a number of bookkeeping Irish subsidiaries. The arrangement with the Republic permitted Apple to pay tax rates as low as 1% or even less. In return, the American giant has built a number of factories in Ireland, employing a few thousands of people.

The problem is though, that both the Irish and Apple’s eventual appeal to the European Court may take more than two years to be concluded. Apple can then also appeal to the US courts. In contrast, when the Americans target European companies, they have the ability to briefly conclude the legal procedures, through judicial settlements that the US courts freely employ.

A landmark case

Nevertheless, the truth is that the Apple case is a landmark in the business and the wider economic relations between the EU and the US. That is possibly why France joined yesterday Germany in the efforts to revive the infamous and faltering Transatlantic Trade and Investment Partnership (TTIP) between the two sides. Berlin has obviously felt the heat that Washington can create.

Since yesterday, France was just observing the whole affair, watching Germany, mainly, suffering. However, it’s not clear how far Paris will go in helping Berlin to straighten its problems with Washington. The Apple case, together with some other equally important affairs, like the Google and the Facebook issues will be the tracers of the unfolding EU-US economic confrontation.

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