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Economy

We all want to pay 0.005 percent tax

| September 13, 2016

That is 1 euro after every 20 thousand euros. Yet only Apple and very few multibillion-dollar businesses enjoy this privilege. Where is social responsibility? What happened to fair competition (among businesses but also member states)? What got into the European Commission? How did Hungary pave the way?

The European Commission has ruled that Ireland should collect 13 billion EUR, plus interest, from Apple on sales concluded between 2003 and 2014, when the company was granted exceptionally favorable taxation status. For eleven years, the Irish tax authority charged Apple only a symbolic corporate tax that was, over the course of the decade, lowered from 1 percent to 0.005 percent.

Despite both the Irish government and Apple announcing plans to appeal the decision, the European Commission’s decision was, to a degree, welcome news as an example of finally taking a stand against corporations enjoying unfair competitive advantage thanks to tax breaks in certain Member States of the European Union. However, many questions remain unanswered.

The practice of member states trying to attract global companies like Apple by offering huge tax allowances is nothing new. The Commission rightly has pointed out that giving tax breaks to only a few companies distorts the free market and hurts competition, but there is another aspect.

We also have competition among Member States to attract big, innovative companies. The practice of the Irish government and others hindered competition on that front as well. The European Commission points out that it was problematic that almost all of Apple’s international sales were recorded in two Apple companies registered in Ireland, enabling Apple avoided paying tax in the countries where the sales were actually made.

“The Commission’s assessment showed that these ‘head offices’ existed only on paper and could not have generated such profits. These profits allocated to the ‘head offices’ were not subject to tax in any country under specific provisions of the Irish tax law,” wrote Commissioner Margrethe Vestager in her statement. But a careful reader might notice something else missing: compensation to Member States.

Similar to the competitors, who paid their tax and who have not been compensated, there are losses here to EU Member States in the form of tax revenue that should have been paid after the profits made on those sales that can’t really and truly be credited to those two ‘head offices’ in Ireland.

Many IT giants and numerous sectors exploit and abuse the loopholes in the different taxation systems of EU member states. Until this decision against Apple, they honestly had nothing to be afraid of.

There’s also a case here of double standards. When Hungary clamped down on certain sectors that enjoyed unfair competitive advantage because of an uneven tax structure – for example, IT, large retail chains, banks and telecommunications – we got little understanding from the European Commission. We explained then that we simply wanted to claim some of the tax revenue that multinational companies do not pay on profits made in Hungary. In almost all cases, infringement procedures were launched against Hungary. Now the Commission is taking the path of the Hungarian government, although the compensation of Member States on missing tax income is still missing.

The Apple case is an encouraging sign that Europe is ready to stand up for Europeans’ interest. Fining Apple for unpaid taxes is a good start, but it is hardly enough. If the European Union truly wants growth, more-or-less balanced competition and a working Single Market, Member States should also be allowed and encouraged to hold multibillion-dollar businesses to the same taxation standards as SMEs. In the last few years Hungary has fought several of these battles with success.