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Wednesday, August 31, 2016

Apple gets bit

Apple's tax problems tell us a lot about where the EU is headed.

A pple's tax problems show that the EU has already gone far beyond a United States of Europe.

The actual details are dull enough to put an accountant to sleep, but in the simplest terms Ireland offered a peachy deal on taxes to encourage the Fruity One to locate offices there. Now, ten years later, the EU suddenly discovered there's revenue to be gotten. They claim that EU's tax rates should apply and are demanding 21bn for ten years' back taxes (including interest).

The story was well prepared for the media, with a flurry of strategically released stories over the previous two days criticizing Apple's Chinese manufacturers for bad working conditions. The reason for these stories, which contained nothing new, was a mystery: now it's clear they were released to create public outrage against Apple.

Apple screwed

You might argue that Apple, with its overt support of anticapitalist social justice warriors, made its own bed and deserves to lie in it.

We all know how much progressives love high taxes and hate big corporations. If there's such a thing as a self-hating corporation, it should be Apple, which constantly burnishes its left-wing image. So you might think they'd enjoy paying taxes. But it's just a myth they've cultivated to insulate themselves from criticism from their customers, who tend to be wealthy people concerned about how others perceive them. The perception is that they sell to insecure, narcissistic progressives who buy their product as a status symbol.

Maybe that perception is exaggerated, but whether or not you sympathize with Apple their tax problem is important because it reveals a lot about the path the EU is taking.

The UK Daily Mail, in an unusual spell-checked article, quoted EU Competition Commissioner Margrethe Vestager as saying “Member states cannot give tax benefits to selected companies. This is illegal under EU state aid rules.”

Apple replied saying “The EC has launched an effort to rewrite Apple's history in Europe, ignore Ireland's tax laws, and up-end the international tax system in the process.”

Commenters on British websites aren't congratulating Apple for its cleverness in outwitting the nasty tax collector. They're outraged about Apple not paying its ‘fair share.’ So we are learning two things:

  1. Collectivist sentiment is widespread in Europe; European citizens seem to have no concept of limited government. The strategy of discovering and shaming tax cheaters to generate outrage is very effective.
  2. The EU has dropped all remaining pretense of being a trade federation, and has become a central government.

In the USA, state and the federal taxes are separate: there are fifty different state forms and an uncountable number of federal ones. Taxpayers fill out both on the same day but send them to different addresses. (They never send us a receipt; the only way we know if they didn't receive it is when the IRS sends us a nasty letter demanding money.) States compete for businesses by giving them tax breaks; companies likely to bring desirable jobs to the state often pay lower taxes than existing ones.

So we get bizarre sights like New York State airing TV commercials claiming that their tax rates are the lowest they've ever, ever been, over scenes of pretty autumn leaves and rolling hills. (Nobody was fooled; New Jersey also tried it once, but the scenes of slums and chemical waste dumps were not as convincing.)

In the USA it would be inconceivable for the feds to care whether the states levy enough taxes. It would be even more inconceivable for them to claim retroactively that a tax break made by a state means the missing revenue belongs to the feds.

What it means is that the issue of sovereignty in Europe is in flux.

Companies like Pfizer that had hoped to move to Ireland to escape America's punitive tax rates are probably relieved at their close call. Taxpayers might have little sympathy, but it is they who will suffer the most as our free enterprise system is slowly strangled by tax-and-spend Western governments.

In Europe the individual countries and the Union are trying to collect the same tax at vastly different rates, and they have set conflicting rules for corporations. In the end, only one or the other will survive.

Until a victor emerges, businesses will ask: who makes the rules in Europe? Can contracts with European member states be trusted? Even if this tax grab doesn't stand, the answer to the second question will be no.

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