Fighting tax avoidance by big business: can we go it alone?
Today we’ve seen the results of a two year European Commission investigation into Apple’s tax affairs in Ireland. The verdict: Ireland granted illegal tax benefits to Apple that were worth up to €13 billion, and the Irish government should now reclaim up to €13 billion, plus interest.
To put such a huge number into perspective – that’s Ireland’s entire healthcare budget for a year.
These tax arrangements have been declared illegal under EU state aid rules, which are intended to prevent preferential treatment being given to particular businesses in the EU single market. Traditionally companies have been able to play one country off the other to encourage a race to the bottom on tax rates. When countries club together and prevent this – as the EU is doing – companies are unable to employ such harmful tactics. Tax, as I’m sure you know but unfortunately this still needs saying, is the biggest source of income for public services including health, education and roads. With appeals being prepared the case against Apple certainly isn’t settled yet, but it does raise an interesting question: if tax issues are better dealt with through collaboration across countries, what will Brexit mean for tackling tax avoidance in the UK?
The fear of many before the referendum vote was that the UK would start a race to the bottom in tax rates outside of the EU. After the Brexit vote, then Chancellor George Osborne made announcements about cutting corporation tax to below 15%. We haven’t yet heard if new Chancellor Phillip Hammond will be following this plan but if he does, will companies like Apple move to the UK?
Some believe this won’t happen, after all, during her leadership campaign Theresa May announced plans to tackle tax avoidance that went further than expected, explicitly stating that, “It doesn’t matter to me whether you’re Amazon, Google or Starbucks, you have a duty to put something back, you have a debt to your fellow citizens, you have a responsibility to pay your taxes.”. However, May has voted against measures to tackle tax avoidance in the past - in April this year, she voted against giving the Financial Conduct Authority and Prudential Regulation Authority the duty to combat tax avoidance arrangements and against other proposals, such as strengthening the General Anti-Abuse rules to cover offshore tax arrangements.
The EU’s targeting of large multinationals isn’t over - we can expect to see more announcements on tax avoidance and anti-competitive behaviour. It is possible that the EU’s tough (but fair) stance will make it more fruitful for May to be soft on corporate tax avoidance. While some may see this as ‘pro-business’ the consequences for public services make such a stance ‘anti-people.’ Tax is an area where the UK must continue to cooperate with the EU, or we'll win the race to the bottom.