Business

Why Brussels is waging war on tech companies

By Anna Schaverien 12 October 2017
Summary

Telling you who, what, and why.

It’s easy to lose track of who’s being targeted by Europe’s powers that be.

So here is our very simple guide to everyone involved and what the fuss is all about.

Amazon’s tax clash

Amazon, Luxembourg, and the European Commission are locked in a tax dispute.

The European Commission handed a huge £222m (€250m) bill plus interest to Amazon last week and the online shopping giant is not happy.

Although it’s nowhere near the €400m the Commission was rumoured to be considering, handing over a quarter of a billion euros is no small thing.

But putting that in perspective, Amazon’s European revenues last year totalled £19.5bn.

It’s a hefty fine, but it won’t put them out of business anytime soon.

I hear you asking, ‘but how does Luxembourg fit into all this?’

Well, the Commission believes it gave Amazon illegal tax benefits between 2006 and 2014 which let the giant skimp on tax (to the sum of €250m).

Luxembourg's accused to giving Amazon an unfair tax break.

The decision is the result of a three-year investigation into Amazon’s ‘sweetheart’ tax deal with Luxembourg, the hub of its European operations.

This allowed Amazon to pay four times less tax than its rivals, said Margrethe Vestager, the EU commissioner for competition.

“Paying taxes is part of doing business in Europe,” she said.

But both Amazon and Luxembourg are unhappy with the ruling (even though the grand duchy would receive the lump sum).

They insist no special exceptions were made and Amazon paid all the taxes it needed to.

Now the EC’s given them a concrete decision, it’s up to Amazon whether it puts up and shuts up or appeals their judgement.

Early indications are it’s considering an appeal.

A poisoned (Irish) Apple

Amazon’s ordered repayment seems a drop in the ocean compared to the one handed to Apple.

Back in August last year, the European Commission ordered to recuperate £11bn from Apple.

The EU wants to take a bite out of Apple's profits.

What did Apple and Ireland do to merit the wrath of the EU?

Another sweetheart tax deal is to blame.

The Brussels bods said Ireland gave Apple a huge discount on their corporation tax by giving them a maximum rate of 1%, compared to Ireland’s typical 12.5% tax on businesses.

Apple got so angry at the Commission’s decision that its CEO Tim Cook got involved with some harsh words.

“The most profound and harmful effect of this ruling will be on investment and job creation in Europe.”

“Using the Commission’s theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed,” he wrote.

But that was way back in 2016. Why are we talking about it now?

Ireland didn’t ask Apple for the money back by the deadline of 3 January this year, as the EC ordered, and now Margrethe Vestager’s on the rampage.

So last week, the European Commission announced it is suing Ireland and dragging them before its highest court, the European Court of Justice.

“Disappointed” was the Irish government’s reaction. They said they’ll recuperate the money by March next year.

“The government is fully committed to ensuring that recovery of the alleged Apple state aid takes place without delay and has committed significant resources to ensuring this is achieved,” the Department of Finance in Dublin said.

Who else does the Commission have it in for?

Google and Facebook are also facing an angry letter from the EU on their tax rates in Ireland.

At a recent conference in Tallinn the chief of the European Commission, Jean-Claude Juncker, said: “Tax has to be paid where it is due, be it offline or online.”

He announced they’re drafting a new tax ‘harmonisation’ proposal which would eliminate the loopholes and tax digital companies based on their revenues, not their profits.

Suddenly, Ireland and Luxembourg wouldn’t be an attractive option for Facebook, Google, and Apple to call their European home and they’d risk losing them and their business.

Unsurprisingly Ireland’s prime minister, Leo Varadkar, is far from pleased about it.

“If we want to foster innovation and Europe to become a digital leader, the solution is not more taxes and more regulation – it’s actually the opposite,” he said.

This isn’t a story that’s going away anytime soon.