The Spectator

A rotten windfall

This is exactly the kind of EU behaviour we voted against

A rotten windfall
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It’s strange that, even now, the Brexit vote is routinely referred to as an expression of anger or frustration — as if the most easily baffled half of the population had voted in response to forces they could not understand. In fact, the result of the 23 June referendum seems to look wiser with every week that has passed.

Of course, leaving has its risks. But 52 per cent of voters judged that a greater one lay in staying in a European Union that is changing all the time — and invariably for the worse. The British vision of the world — of free trade, friendly competition and respect for sovereignty — clashed with the EU, which seeks to build a wall around a continent and which is alarmed by the notion of competition, particularly when nation states vie to host the world’s most successful companies.

For years, Ireland has sought to attract global businesses with the most competitive corporation tax on the continent — at 12.5 per cent. For years, the EU has tried to stop this, but the pressure from Brussels has been matched by the Irish determination to resist. Having lost this battle, the EU has now found a new line of attack: to declare Irish tax breaks to be somehow illegal and to punish Apple for its decision (dating back to the 1980s) to register its European sales at an Irish bureau.

This retrospective tax raid is nothing short of astonishing. Paul Ryan, Speaker of the US House of Representatives, had it right when he said that slapping a company with a giant tax bill, decades after the agreement was first struck, sends the wrong message to job creators on both sides of the Atlantic. As he put it, this is ‘precisely the kind of unpredictable and heavy-handed taxation that kills jobs and opportunity’.

Donald Trump, on the other hand, will be rather envious of the populist, anti--corporatist tone of the European Commission — which now seems inclined to regard large companies as inherently malign. The EU’s propaganda statistic, that Apple pays 0.005 per cent tax on the profits from iPhones sold in Europe, is also astonishing. Set aside the fact that about 20 per cent of the price of an Apple product is VAT payable straight to national government, and that the profit sent back to California is then taxed at 35 per cent by the US federal government. Apple is not dodging tax, merely paying tax where it is due: in the country where the value is created.

To be sure, such tax rules are far too complicated: more tax could be raised if the system were more straightforward. But governments set the laws, and companies obey them — this is how democracy works. You can argue that Ireland ought to be charging more, but this is an issue for those who elect the Irish government. There seems to be a fairly wide consensus that a small country on the periphery of Europe needs to offer competitive tax rates.

So we are now witness to the bizarre spectacle of Ireland’s heavily indebted government moving heaven and earth to avoid collecting €13 billion of backdated tax which the EU wants Apple to pay. It is doing so because it realises what is really at stake: the EU has finally found a way to undermine the low-tax formula that has been the foundation for Irish competitiveness. If the EU succeeds then Ireland stands to lose far more than €13 billion as other companies move elsewhere. Michael Noonan, Ireland’s minister of finance, says the only rational choice is to fight the EU and that ‘to do anything else would be like eating the seed potatoes’.

Those potatoes were sprouting rather nicely last year when the Irish economy grew by an almighty 26 per cent — helped by an influx of global business. Like Britain, the country has adopted an open approach to the global economy, encouraging wealth creation and agreeing deals with American companies which prefer single taxation to double taxation and use Ireland as a stepping stone to EU markets. Like Britain, Ireland prides itself on offering low tax and a stable legal environment — yet the country now finds the EU is taking a wrecking ball to both. In so doing, the EU has served notice to American firms: they’re not really safe in any of its member states.

The confusion presents a clear opportunity for Britain. Theresa May has already sent out the message that Britain is ‘open for business’ — a message that will be made all the clearer if her Chancellor, Philip Hammond, lowers corporation tax to 15 per cent. Britain voted to leave the EU in large part to put an end to its diktats, and to establish the basic principle that the people of any country have the right to live under their own laws. The erratic and probably illegal behaviour of the European Commission underlines the concerns shared by so many in Britain that the EU, as an institution, is spiralling out of control.

Perhaps Apple’s cardinal sin was to build a £150 billion cash pile. If any company has a stash of money that size, governments are going to dream up a way to help themselves to it — especially in jurisdictions where the rule of law is weak. If the EU wants to establish a reputation for unpredictable and retro-spective tax raids, it will only deter the investment and jobs it so desperately needs. Britain has chosen a different path and Theresa May’s government now has an enviable opportunity to make this clear.