Last week's EU ruling, which held that Ireland afforded Apple "undue tax benefits" of approximately $14.5 billion and basically demands that Ireland collect retroactive taxes from Apple, is absurd and dangerous and could have a major impact on the EU's future.
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I was involved with the Irish Development Agency (IDA) back when Apple first decided to go to Ireland. At the time, the Irish economy was a disaster, and it was losing its college graduates to other countries because there was no work for them at home. This was a particular drain on the country's two top universities, which were producing some top engineers and IT pros.
In those days, Ireland and other European countries had tax-incentive programs but not for the tech industry. So the tax program IDA developed was groundbreaking and successfully lured tech companies to Ireland.
Apple took advantage of the program and created many jobs in the region; Dell and Lotus soon followed.
Some years later, I visited the Apple Cork facility with IDA officials. They were proud that the tax incentives brought these key US tech companies to their country. They provided jobs for university graduates and others and stabilized Ireland's economy at a critical time in its history, they said.
The program IDA developed was so popular that many European countries copied it, from France and the UK to Germany and and other EU partners. HP, for example, took advantage of these tax programs in Scotland.
IDA is still actively tyring to bring companies from all over the world to Ireland, but this EU ruling will hit them hard if it goes through.
"The Commission's move is unprecedented and it has serious, wide-reaching implications," Apple CEO Tim Cook said in a letter to the Apple Community in Europe. "It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe. Ireland has said they plan to appeal the Commission's ruling and Apple will do the same. We are confident that the Commission's order will be reversed."
Cook argued that "the Commission's case is not about how much Apple pays in taxes. It is about which government collects the money." According to Cook, "nearly all of [Apple's] research and development takes place in California, so the vast majority of profits are taxed in the United States. European companies doing business in the U.S. are taxed according to the same principle. But the Commission is now calling to retroactively change those rules."
If the EU ruling is put in place "every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed," Cook concluded.
Part of my educational background was studying the potential of a European Union in the early 1970s. Back then, the issues were so complex, the movement to create an EU was killed and did not get revived for another 25 years. But one of the major things that came up, even back then, was how the individual countries would handle their taxes at a country level and how a federal tax could be implemented.
When the new EU was finally created, the EU governing body made concessions and said each country was allowed to determine its own tax structure. So last week's Apple ruling goes against the EU's own agreements with its partners. Given that Germany, the UK, and France have similar tax incentive agreements, I suspect they will also weigh in and support Ireland and Apple at some point.
Keep in mind, this tax incentive program was created well before Ireland became part of the EU. It helped save its economy, and Ireland has no interest in turning back the clock.
For another important perspective on this subject, check out John Swartz's piece in USA Today, which discusses how this ruling could effect other tech players, too. Also see how US officials view this move.