Eg Ireland might give a tax incentive if a large Fortune 500 company hires X people in Ireland.
Question: does this ruling prohibit that common practice?
Lufthansa did receive state aid during the pandemic. This is currently under investigation as the EU’s approval was annulled by an EU court: https://ec.europa.eu/commission/presscorner/detail/en/ip_24_...
Plus tax cuts for the employees of ASML, which is fully legal under EU legislation and prohibitions.
"Oh no, education and better infrastructure such as mass transit and a power grid, the horror!"
But a bus line that goes from the train station directly to one company, together with housing that will be filled with the expats from ASML is obviously an (indirect) company subsidy.
> Plus tax cuts for the employees of ASML
https://business.gov.nl/running-your-business/staff/terms-of...
Whether ASML and their employees get extra benefits on top of the 30% ruling I'm not sure, I wouldn't be surprised if they do though.
The EU hands out billions in direct aid to companies every year. Many times together with the country governments. So there's no such prohibition in practice. In the EU regions I am familiar with, at least 70% of companies live on getting subsidies from the EU mainly and income from actual customers as a secondary concern. And I'm not talking about agriculture, but every industry.
Few businesses will even start any economic activity before they've received at least a hundred thousand in subsidies and investment grants. Not loans, which is a different matter.
Just one example: https://commission.europa.eu/business-economy-euro/economic-...
This said, if the incentives are tailored a bit too much (i.e. there is clearly only one company that satisfies the prerequisites), it could be challenged as state aid. You still need someone to start the challenge though - either a competing company or a Commissioner.
That seems like a bit of a perverse incentive for countries to offer deals they may know will get overturned later because they'll get the money eventually.
If the government approached Apple, to offer them a special (specific to Apple) tax deal in exchange for X ... why is Apple now being held accountable for Ireland doings.
Tax Abatements are a long, well understood practice that's been leveraged by city/state/federal governments for decades to incentivize desired outcomes.
Look at Electric Vehicles (EV's)
Both California and Federal government were giving tax incentives for individuals who purchase an EV.
This tax abatement was used to incentivize the adoption of EV's.
Is that "corruption?
Absolutely not.
Let's be honest, if this happened in any "less reputable" jurisdiction, Apple would definitely be under FCPA scrutiny.
> Tax Abatements are a long, well understood practice
Yeah, the kind of "tax abatement" that is available only to a select few.
Yes, there's a widespread view in Ireland that this was the best possible outcome: be seen to fight tooth and nail to prevent collecting the taxes, but get them anyway.
> That seems like a bit of a perverse incentive for countries to offer deals they may know will get overturned later because they'll get the money eventually.
I'm not so sure of this, though. The companies aren't fools and have better paid lawyers than the countries, so they won't enter these deals unless they rate their chances of getting away with it.
Apple's decision to put their trust completely in Ireland officials and sidestep the EU is their own mistake. Reminds me of when Trump tried to arrange a trade deal with Germany without EU, which was impossible.
> Ireland doesn't have the power alone to overturn these kinds of laws
How was apple to know what ireland could and could not do? Why should they have to? Irish government said to apple that the rules are as such. The precedent this sets is that companies should not trust governments' words, instead each company should somehow interpret the laws themselves, each (surely) in their own way. Are we sure we want to set this precedent?
Ignorance of the law is not an excuse.
And forget apple! This means that any company in existence now needs a lawyer who understands the Treaty of Lisbon! Just in case some EU country tells them to do X, they now need to know if said country can actually say so!
I think you underestimate the damage of "we cannot trust the actual government to tell us what we can and cannot do"
I wonder how these companies manage not to run afoul of US FCPA.
Hyperbole makes you look hysteric. The reality is that every other company is doing just fine, paying the tax they owe. The only companies who have to worry are shady ones like Apple (abusing tax-havens since the '80s, with Braeburn etc): it's now established that secret agreements with cosy governments will not be tolerated in the EU, as it should be.
What's next? All the member states that offered attractive VAT rates when the regime was different years ago and doing so was advantageous retrospectively get reset to some baseline rate around the bloc's average and every company that ever paid VAT at lower rates in those member states gets a bill?
Cases are prosecuted if someone (either competitors or the Commission) thinks they're worth the trouble. Apple and Google were clearly worth it, simply because of the massive amounts of money involved - nobody cares if an ice-cream stall is foregone 100 euros. If you know of other worthy cases, feel free to take them up with the courts.
You're mischaracterizing the issue, by the way. The problem is the way one specific company was treated, which was not in line with the practices the Irish had cleared with the EU. Other companies were not treated like that and were just fine.
> retrospectively get reset to some baseline rate around the bloc's average and every company that ever paid VAT at lower rates in those member states gets a bill
That would be an extremely popular measure, politically, but there is currently no indication that the Commission or the ECJ will ever ask for that, and it has nothing to do with this judgement.
And I doubt that retrospective VAT change would still be very popular after trading with the EU became completely toxic - which is not an unrealistic outcome from such a hostile act. Businesses already avoid EU customers because of the existing environment. Retrospective demands for more money would be much worse.
If you think Apple and Google are the only two "shady companies" who work with the governments of the countries they operate in to optimize their taxes, I'm not sure what to tell you.
It's basically impossible to protect yourself via the word of law. Because when the rubber hits the road the judge can interpret whatever they want. Unless there is precedent even the best lawyers are just guessing.
That argument is quite a stretch when the EU tends to pass relatively ambiguous legislation and leave interpretation relatively open compared to for example the legal framework in the US, when it was not some random law firm but literally the relevant national government that gave Apple the OK, and when that situation was widely known and apparently accepted for about 30 years before the EU intervened.
I think the EU will pay a high price for actions like this. It is retrospectively moving the goalposts decades after the fact and trying to shift billions in funds when ironically neither the company paying the taxes nor the member state government apparently compelled now to collect them want that situation. You can't play games like that and remain a credible environment for investment and growth.
This particular action is specific to Ireland but by the nature of the EU its willingness and ability to take such an action in one member state taints all other member states as well. And without constitutional change to the EU itself there will never now be anything that any member state can ever do to remove that stain. Businesses now can't trust that any incentives they are offered to invest and grow in any EU member state won't get reversed further down the line no matter what any government of any member state says. It's hard to overstate how devastating that reality could become to member states trying to attract investment and grow their economies.
A few years ago we had some fierce debates on HN about EU measures like the GDPR. Some claimed the regulations were excellent and compliance was easy if you weren't doing anything wrong. Some were more cautious and thought the length and frequent ambiguity of the regulations meant it couldn't be that simple. The strident defenders of the GDPR as lightweight regulation that should cause no significant costs or problems for honest businesses might like to read Mario Draghi's assessment of it from his report this week.
Having companies afraid of massive penalties if they mess up is fine and good, but only works if the conduct you're trying to disincentivize is one you're ok with them not doing at all.
That is because the EU is not responsible for the member-states’ national laws, so they leave some room for different implementations. It’s on purpose.
In the case of Apple’s situation, it’s completely different. What is relevant is Irish law, which is clear and unambiguous. What was misleading was the behaviour of the Irish government.
> I think the EU will pay a high price for actions like this. It is retrospectively moving the goalposts decades after the fact and trying to shift billions in funds when ironically neither the company paying the taxes nor the member state government apparently compelled now to collect them want that situation.
They are not moving the goalposts. It’s more analogous to the IRS saying that there was an error in someone’s tax filings some years ago and that they need to pay the back taxes. Again, there is no fine here. The amount Apple has to pay is what they should have paid according to Irish law at the time.
That's not quite how it works. The EU makes binding legislation in three different forms. Regulations - such as the GDPR - apply directly in all member states. Directives are the indirect ones that establish a principle but require member states to implement their own laws to give direct effect to that principle. Finally there are decisions, which are binding on a specific party such as a company or member state.
You can read more about the different types of EU legislation at https://european-union.europa.eu/institutions-law-budget/law....
But the decision in this particular case wasn't (directly) any of those things. It was a ruling by the ECJ in a case brought by the Commission.
What is relevant is Irish law, which is clear and unambiguous. What was misleading was the behaviour of the Irish government.
But this is the problem. Tax systems are always complicated and open to interpretation in numerous ways. Large businesses are always required to make judgements about what they need to do to be in compliance with all of the relevant rules and always take advice from experts on these matters. What this action by the EU means is that businesses - including properly run businesses that have no intent to cheat anyone of anything - can no longer trust that following advice even from what should be the most authoritative sources they can ask will be sufficient.
They are not moving the goalposts.
The arrangements this legal saga has been about ran from the early 1990s for more than 20 years.
The EU started the legal action in 2016 when those arrangements had already ceased anyway and has spent about 8 years chasing it through the various courts and processes to reach this point.
If the IRS went after someone's tax filings from a year or two ago because they hadn't paid the correct tax that would be one thing. This is more like the IRS going after someone's tax filings from 30 years ago after allowing the arrangements to continue unchallenged with its full knowledge for a further 20 years and knowing that the the individual had already paid tax to another tax authority during that period instead because they weren't paying it to the IRS.
Except it's not really like that either because in this case it looks like it was the equivalent of the IRS that gave its blessing to the arrangements in the first place. So it's more analogous to some hypothetical higher authority coming along over 20 years after the fact and declaring that there was an error in someone's taxes that had been reported according to an agreement with the federal government and accepted by the IRS.
I'm not too familiar with how exactly it works in the US so excuse the probably poor example, but this is more like Texas deciding that they want to attract businesses by saying they'd lower taxes a bunch. They say to the IRS "Hey, we're going to be lowering all corporate taxes to 15% across the board, is this good with you?". The IRS says sure, not knowing that what Texas is actually doing is making sweetheart deals with companies like Apple to have them pay a tax rate that is basically 0 (0.005% as is the case with Apple in Ireland).
This tax-free opportunity is only provided to a single company. The lying here is relevant, because Texas explicitly told the IRS they'd be charging every business at 15%, only to then make a special deal with Apple that's unfair to all other businesses and Apple's competitors.
A decade later (more like 2 in this case), the IRS investigates and sees there's been a discrepancy between what Texas said they'd be doing (taxing them at 15% like they said they'd charge every business) and what they're actually doing. So, the IRS says that's not allowed, and that Apple now owes Texas that unpaid tax income whether Texas wants to take it or not.
Texas doesn't want it because it makes them look like they're double dipping. Apple doesn't want it for obvious reasons.
Effectively - your hypothetical proposed ‘apple law’ would, at some point in the Irish law passing process, be found to be incompatible with their commitments to being in the EU, and I assume it would be then an unconstitutional law. The price of admittance to the EU is basically having this process and constitution.
Now - they could go ahead and do it anyway in which case the enforcement from the EU could range from anything to an angry letter to some large monetary penalty - as is the case with Hungary currently being withheld some funds.
Again, not disputing that this is legally accurate to how things work, but that definitely strikes me as an environment that a lot of businesses would find hard to work with. Other smaller startups I've worked with had Irish branches because it was a good way to hire devs and governments gave us some incentives. Finding out, potentially decades later, that the Irish government had screwed us over would be a lot more catastrophic than this fine will be to Apple.
Does it make the EU/Ireland a little less attractive to foreign investment? Maybe. Was it worth the gamble in the end for Apple and Ireland - probably.
They're not really getting a reward, because this makes them much less attractive for investment. Meaning less tax revenue in the wider and longer perspective.
The Union competency in question had been established by treaty - the establishment and protection of the Single Market, and as I understand it, specifically the provisions restricting state aid - where by being members of the Union, countries have delegated regulatory and judicial primacy to organs of the Union.
It’s worse than that. What was being ignored was Irish law. The EU just said that this law should be applied equally without the Irish government cutting special deals.
> Apple's decision to put their trust completely in Ireland officials and sidestep the EU is their own mistake.
Indeed. But it is not a terrible mistake: you should be able to take a tax administration at their word, even though you should also know what you have to pay in taxes. They are not really being punished, they just need to pay what they owe, which I think is fair.
It's pretty much everywhere. The government isn't a person that can make decisions autonomously.
Well, Apple accepted the illegal deal, didn't they?
> That seems like a bit of a perverse incentive for countries to offer deals they may know will get overturned later because they'll get the money eventually.
There's also a perverse incentive for companies to defer paying taxes for 20 years. Apple isn't getting fined, they're just paying what they owe 20 years late.
edit: apparently the years were 1991 to 1997, so that's about 30 years actually.
Hence, fewer US companies will have significant production in the EU in general, and possibly Ireland in particular. Let's hope it will help native European industries flourish %)
If I get a tax agency worker to sign me a piece of paper that says I don't ever have to pay any taxes, I can insist that they said so all I want but I'll still owe the back taxes when someone finds out because that person had no authority to say I don't.
Also capital flight doesn't actually work like that no matter how often people parrot it. Ireland is the European HQ for US tech companies because they need a European HQ to access the extremely lucrative market and Ireland is willing to go to great lengths (clearly including "agreeing to conditions they can't legally agree to) to attract them to go there in particular. If Ireland becomes less attractive that means they will be more likely to go elsewhere but their European HQ will still be in the EU/EEA because that's what it's for. This wasn't a case of Ireland competing for Europe where Ireland losing is a loss to all of the EU, it was Ireland competing against other EU countries.
Well, you are free to ignore one of the biggest markets on the planet. I'm sure your European competitors will enjoy filling your niche.
If Ireland is willing to give the same tax incentive to any company hiring X people in Ireland, it's fine.
If Ireland only grants the rebate to Fortune 500 companies in a bid to lure specific US investment, it's the state creating a competitive distortion i.e. state aid.
You are allowed to make rules, but you can't offer deals.