Brussels’s treatment of Apple justifies Brexit

The European Commission’s ruling on Apple, and its €13 billion bill for back-taxes, raises some complex issues of tax law.

But the political issue is quite simple; it shows that those of us who argued for Brexit on constitutional grounds, that the EU had become an all-powerful super-state, were quite right.

First, the claim that tax is a national issue, for national governments and parliaments to decide on, is now entirely exploded.  A question of how Ireland operates its own tax system has been over-turned by the EU’s Commission, making it clear that no EU member country has control over its taxation.

We who work in tax have known for years that claims of national sovereignty over tax were nonsense; I was writing about the EU’s control over its members’ tax policy nearly fifteen years ago; but it is now clear to everyone.

Second, this wasn’t a question of allocating taxing rights between different EU countries, which possibly could have been argued to be a reasonable consequence of being within the “European Club”.  This was purely an internal Irish matter, but despite there being no EU dimension the EU Commission still intervened.

There was no other EU tax at stake in this ruling, and no other EU country was affected; no other EU country had lost tax because of Ireland’s deal with Apple and no other European country can charge Apple any more tax as a result of this ruling.  This was purely an internal matter for Ireland’s tax authority (or possibly the source of a future row between Ireland and the USA).

The implication is clear; the EU is no longer about promoting co-operation and resolving disputes between its sovereign Member States; it is a supranational body that lays down rules about how its members are to behave.

Third, the action Ireland must take in consequence of the EU’s ruling also demonstrates that supranational supremacy.

If the EU was a club of sovereign member countries, as many europhiles often imply, then Ireland would be fined for breaking the rules and that would be the end of the matter.

But that is not what has happened.  Instead, Apple must pay the additional “tax”.  This means that Ireland’s tax law has been set aside, the decisions of its tax authority has been over-ruled, and instead of the tax due under Irish law, the EU Commission has imposed the tax bill that it thinks should have been due.

In constitutional terms, Ireland has been treated like a misbehaving local council that has acted ultra vires, exceeded its authority.

And if Apple objects, the Irish courts will be in the dubious position of enforcing a tax bill that, under Irish tax law, should not be due.

As to the more complex legal matters, the EU Commission’s ruling has made rather a hole in the international tax system.  It has effectively said that because one branch of the Apple subsidiary’s operations was in Ireland, all the activities of that company should be taxable there.  That is a complete contradiction to over a hundred years of international tax.

The principle has always been that a company can have different branches in different countries, and that each branch has its profits taxed in the country where it operates.  When a UK company opens a branch in Paris, the profits of the Paris branch are taxable in France, but that does not make the company’s entire worldwide profits taxable there.  The EU Commission has torn that up, and has done so without putting any properly explained alternative position in place.

There will be much more written on Apple over the next few days, but one point is clear; for anyone who has any belief in any form of national sovereignty, the Apple affair shows that Brexit was the right decision.