Market distortions
The European Commissioner for Competition, Margrethe Vestager from Denmark, has issued a ruling criticizing Ireland for providing undue state aid to a specific US corporation, Apple, enjoying customized favorable tax treatment. This case highlights the urgent need for tax harmonization of giant-corporations inside Europe, so they may pay fair fiscal contributions
The facts: the European Commissioner for Competition, Margrethe Vestager, from Denmark, has criticized Ireland for providing undue tax benefits to the US company Apple. In short, for years Ireland exempted the US IT giant with registered offices in the emerald island from paying its fiscal contributions. Actually, it did collect taxes, but in such ridiculous amounts that the taxpayers of the entire Milky Way would walk over hot coals to have the same tax treatment. In fact, the customized annual tax rate amounts to 0.005%, obviously after cost-deductions: € 50 thousand euro gross per billion earned…
The most interesting – or rather, awkward – aspect is that Apple has created a financial mechanism whereby even the sums invoiced outside Ireland – as in Italy – ultimately end up almost entirely in the Irish piggybank. In short, Apple pays Italian fiscal authorities 0.42% of its turnover in Italy.
We’re talking of the largest multinational in the world with a stock market value of over 570 billion dollars, a turnover of over 50 billion, and a liquidity of 231 billion dollars.
Put in these terms it would appear to be a blatant distortion, which in fact it is. Except for the fact that European treaties grant national governments complete fiscal autonomy.
Italy grants tax benefits to whoever invests in the South of Italy; to new recruitments; to the purchase of given goods or services (furniture, building renovation, ecologic materials for construction, etc.) Greece granted tax benefits to business activities on the islands; Great Britain recognizes tax havens within its territory – from the Cayman Islands to Bermuda. And so on. The question with Apple is that the customized tax benefits are seen as having distorted competition with other companies: a capital sin for United Europe. How can you compete with a corporation that pockets to the last penny, while honest taxpayers are asked to pay one to two thirds of their income to Italian fiscal authorities? This is the reason for the huge penalty imposed to Ireland (not to Apple). It will be eventually be up to Ireland to demand compensation to the American corporation, which nobody is sure will happen. Apple, along with hundred of corporations – most of which are American companies with home offices in Ireland – have a workforce of approximately 140 thousand people on a population smaller than that of Italy’s Veneto region. This sustenance has helped Ireland overcome the economic downturn of the past years and boosted the GDP, which has registered constant increase since. In fact, the Irish are furious with Brussels.
Also Europeans are furious, but with the Irish. Although it’s a single market, financial treatment varies according to “customers.” France is a stable country, among the world’s soundest economies, the gateway to a large part of Africa, with outstanding bureaucracy in terms of quality and efficiency. But nobody invests one euro in the national territory, owing to a tax rate that is even worse than the Italian one (and we’re talking of a Country where everyone is under the obligation to pay taxes). In turn, these taxes serve to sustain an elephantine State and avwelfare system that is almost unique in the world. Should France change? Or should France’s surrounding context? Notwithstanding a confused and problematic situation at European level – one of many others-,
The specific question of the tax treatment of mega-corporations that follow their gains needs to be addressed.
Apple, Google, Facebook, Alibaba, Amazon, Ryanair… The total amount of their turnover is huge, their tax contributions correspond to minimum rates. Countries are now taking action at national level. Italy has concluded a set of agreements envisaging less ridiculous tax rates for the huge revenues earned in our market; Apple negotiated a payment of 318 million euro; Google is getting on track in terms of its obligations – and not only in terms of rights – towards the Italian publishing market. Digital economy is growing steadily, in a few years it is expected to represent a fourth of the total sum. The present Far West is predicted to be nearing an end, ultimately adopting a different form of regulation thanks to the force that Europe possesses, if it wills. If the Commission shuts its doors to a company, it will be precluding the development of the largest single market in the world. In the meantime, tax harmonization will need to develop in different forms. Taxes need to be collected and paid all over by everyone, for also Italy’s abundant black money represents a major concealed market distortion. Finally, things must be done at acceptable levels. It’s unacceptable for the State to be the major shareholder of a company that does everything following the rules.
