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What lessons should we draw from the EU’s attempt to over-rule the Irish Government on its own tax laws, specifically with regard to alleged ‘state aid’ in the case of Apple?

First, this is a reminder of how fortunate we are to have voted Leave. During the referendum campaign, Leavers repeatedly warned that a vote to stay in the EU was a vote for continued membership of an organisation which intended to continue to accrue more and more power to itself, including over taxation, at the expense of member states. The response from Remainers (seen here, here and here on the pro-EU “InFacts” website, for example) was to pooh-pooh the idea, saying that the UK had a complete veto over any expansion of Brussels’ powers over our tax policies. In reply, Leavers argued that the Commission has a long track record of leveraging agreed powers to extend its remit in a way that gets round the vetoes. In the case of Ireland, where the Commission is using state aid powers – intended to prevent subsidies – to dictate tax policy, that argument is vividly demonstrated.

Second, this is a serious test of Ireland’s commitment to the Laffer approach to corporate taxation. Dublin believes (rightly) that the benefits to its Exchequer and wider economy of creating an attractive environment for multinational businesses outweigh the losses incurred in terms of any direct revenue which they pass up to create such an environment. This is why we now have the extraordinary sight of the Irish Government going to court to argue against taking £11 billion from Apple – they believe that to implement the EU’s instruction would cost them even more in lost income by driving Apple and others out of the country.

Third, this is a step towards the tax harmonisation that Brussels has long desired. The EU loathes the idea of tax competition between its member states – preferring, unsurprisingly, to dream of a system in which it both sets tax rates and collects the revenue directly, freeing it from the irritation of relying on its members for its budget. Ordering Ireland to stop attracting businesses by offering them bargain basement tax rates is an obvious infringement of national sovereignty – applying this principle more widely could lead to the end of national governments being free to offer tax incentives entirely. These are the powers that allowed Thatcher to bring Nissan to Sunderland, and aided in the development of Canary Wharf. Brussels is starting its campaign cleverly, in targeting a wealthy multinational which evidently pays an extremely low tax rate, but the end objective is to raise taxes on everybody else, too. What claims to be a campaign for “fair share” taxation is in fact a campaign against tax rates being decided by democratically elected national governments.

Fourth, this is a dual opportunity for the UK. Most obviously, as we are leaving the EU we could surely coax such businesses to relocate here if Brussels forbids Ireland and others from wooing them. Indeed, Downing Street hinted at exactly that in its warm statement in response to the ruling. More subtly, this could be yet another bargaining chip in the negotiation to come. For obvious reasons, an EU which is already relatively high-taxing, and which is keen on further harmonisation, is far from keen on the idea of Britain establishing itself as an attractive low-tax competitor in the same neighbourhood. The threat of doing exactly that – and the promise of not doing so, if well-treated – could come in quite handy during Brexit talks.

 

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