While the EU has much to do to sort out the myriad problems that exist in the Union, it continues to put pressure on member countries that have made tax deals with companies that would be of benefit to them in reviving their economy.
Brussels continues to crack down on Silicon Valley giants and their tax arrangements in Europe, leaving the door open to further action after fresh rulings against major corporates, Amazon and Apple.
Competition chief, Margrethe Vestager recently indicated the European Commission (EC) will likely scrutinise more so-called favourable tax deals enjoyed by some companies as she slapped down the online retailer with a 250 million euros bill for back taxes.
Amazon’s arrangement with Luxembourg amounted to state aid, she ruled, and the company was “allowed to pay four times less tax than other local companies subject to the same national tax rules.”
Amazon said it did not receive any special treatment and “paid tax in full accordance with both Luxembourg and international tax law.” It is considering its legal options but is expected to appeal the decision. Tax law experts believe it will be upheld, but the sum owed could be reduced.
Luxembourg said Amazon “has been taxed in accordance with the tax rules applicable at the relevant time”, adding that it is fully cooperating with the commission and is committed to tax transparency and “the fight against harmful tax avoidance.”
And in a separate but similar case, the EC will take Ireland to the European Court of Justice to force it to recoup 13 billion euros from Apple after ruling the Irish government has been slow to act.
More than one year after the Commission adopted this decision, Ireland has still not recovered the money,” said Vestager. The iPhone maker was slapped with the record tax bill last year after the commission ruled its deal with Ireland also amounted to state aid.
Ireland insisted it is “fully committed” to ensuring the recovery of the money, despite disagreeing with the ruling, and “has committed significant resources to ensuring this is achieved.
The Irish finance ministry added that the latest action was “extremely disappointing”, “regrettable” and “wholly unnecessary” in a strongly worded statement.
The EC is now likely to target other “household names that are easy to vilify” said John Cassels, competition and trade partner at law firm Fieldfisher, noting the greater appetite for action against Silicon Valley among the public in recent months. Several EU member states signalled their intention for coordinated action on tax, with France and Germany among nine countries to back proposals to apply it to turnover rather than profit. The latest action by the EU competition commission is likely to inflame tensions between Europe and the US.
Business groups and politicians in the US have previously warned that such actions are detrimental to economic growth. Cassels added that the current political environment made it unlikely that the UK would seek to become a low-tax destination after Brexit.
While the EC is coming down hard on countries within the Union of the tax deals, they are said to be increasingly interfering and are criticised for failing to address problems that mount within the EU.
For a start, critics point to the migrant crisis which is now in its third year with thousands still arriving. The EU has also overridden the governments of member states, most notably the Eastern European members, forcing them to settle migrants, against their governments’ wishes.
This year, the EU has taken a member state — Poland — to court over the country’s constitutional reforms, and has issued a similar threat to Hungry over its refugee resettlement programme refusal. Brussels has reminded all member states that it is the EU — not their national governments — that rules supreme.
Unemployment has also been pointed out. Youth unemployment in Greece was nearly 50 per cent, in Spain 40 per cent and Italy 37 per cent. And banks in Italy and Spain have had to be bailed out again in 2017.
Also, this year, the EU maintained its stiff sanctions against Russia, as the Crimean situation remains unresolved, but the gas imports from Russia into the EU are exempt from sanctions.
The list of discrepancies and issues to be sorted within the EU goes on, the critics say, and from UK’s point of view it all adds up to make Brexit inevitable.
(The author is our foreign correspondent based in the UK. He can be reached at email@example.com)