Apple – Caterpillar and the EU

The case for a « closer Europe »!

 

The decision taken by the European Commission directing the Irish Government to recover from Apple € 13billion in back taxes on the grounds that earlier exonerations were in breach of “State Aid” legislation distorting competition, as well as Caterpillar’s announcement to close down its Gosselies plant in Belgium causing an overall loss of 6000 jobs, have dominated the EU’s economic news last week.

 

If it is hardly surprising that Apple has indicated it will appeal this decision; the opposition of the Irish Government, on the other hand, is a further challenge by a Member State to the authority of European institutions.

 

Similarly, the brutality of the announcement by Caterpillar, underlines the disequilibrium between the decision making powers of a large multinational corporation and the means that EU governments have to oppose them.

 

Both examples, which are completely different and unrelated, underline however, the structural weakness of the Union’s current institutional architecture. They demonstrate clearly the need of “more Europe” (and not only a better Europe) if one aims at creating both a level playing field within the “single market” by promoting a healthy tax competition based on a common framework (ending the sacrosanct “absolute sovereignty” of member States in fiscal matters) and, imposing a set of agreed rules applicable to all those wishing to gain access to the said market (limiting the ability of economic actors to engage in “regulatory shopping”).

 

If the principle of being able to choose “the lowest tax option available” should be strongly upheld, there should nevertheless be a base framework applicable throughout the single market (common rules on the tax base and the sharing of the proceeds) so that it becomes impossible to evade taxes while abiding by the letter (if not the spirit) of national tax codes, as is the case at present.

 

In addition to the changes needed to eliminate the excesses of tax engineering within the Union, this problem should also be considered globally (within the G20). It is indeed shocking that the United States feel free to censure the European Commission in the Apple case by invoking the lesser amount of taxes that the US IRS would receive when American companies repatriate their foreign earnings. If, while waiting for the now unlikely conclusion of the TTIP, one must accept differing rules on both sides of the Atlantic, one should nevertheless enforce a strong measure of reciprocity in tax treatment between autonomous jurisdictions.

 

The Caterpillar case is totally different in nature. There is little doubt that if, when coming to its decision, management was compelled to consider repercussions on its overall trading relationships within the single market, its overall negotiating position would be much weaker than is the case in this particular instance where its principal State counterparts are limited to the Belgian and Walloon governments.

 

 

It should be made compulsory, in line with procedures on mergers and acquisitions, to require prior notification to the Commission, accompanied by a detailed description of the steps envisaged, in the event of a liquidation or significant restructuring of a company’s major subsidiary, wherever it may be located within the EU.

 

Member States are facing a difficult choice: either they insist on “national sovereignty” privileging their narrow interests and risking becoming exposed to blackmail; or they are prepared to share some additional attributes of sovereignty to strengthen their negotiating position in the face of unilateral decisions taken by large multinationals. It is a real shame that it is only when facing adversity that, unable to react vigorously on their own, Member States turn to the EU appealing for its Members solidarity.

 

Political parties of whatever persuasion including the most Eurosceptic, Governments, local company managements as well as Trade Unions defending their members should all recognize the added value a suitably empowered EU could bring to the protection of the interests of European citizens. The Brexit debate is an additional illustration of this key debate in which the U.K. is likely to suffer in its capacity to uphold its interests on its own, not only versus the EU but also in subsequent deals with third countries such as the USA, China or India.

 

If a return to protectionism is to be avoided which would prove disastrous in a world where prosperity is tributary to maintaining the fluidity in the exchange of goods, services, capital and brains it is of paramount importance to promote an appropriate regulatory environment which establishes an equilibrium between the legitimate interests of the different constituencies involved. That is the price to pay in order to curb the exorbitant power of the multinationals and curtail their power to “divide in order to reign”.

 

Brussels, September 5th 2016

 

 

Paul N. Goldschmidt

Director, European Commission (ret.); Member of the Steering Committee of the Thomas More Institute.

 

 

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