EU Reps Admit That the $14.

5 Billion Apple Tax

Bill Was 'Political'
by Reuters SEPTEMBER 5, 2016,

But not in the way that you think.

The European Commission denies that its shock demand that Apple hand 13
billion euros in back taxes to Ireland is, in the pungent phrase of Apple CEO Tim
Cook, total political crap.
But, say senior EU officials involved, the decision certainly has a strong political
element, even if Competition Commissioner Margrethe Vestager says she is
confident her case will stand up to Cooks appeal on its legal merits alone.
Brussels political target is less corporate America than eurosceptics at home
who threaten to pull the EU apart if it fails to show alienated voters it can act in
their interests.
Being political should not be confused with politicized, said a spokeswoman
for Commission chief Jean-Claude Juncker. For him, fighting tax avoidance had
been a top priority since before he took over the EU executive two years ago,
she said.
The drive towards fairer taxation is in President Junckers political guidelines,
she said. At the same time, Vestager is an entirely independent enforcer of
EU competition law, she added.
Efforts under way, including in the United States, to clamp down on tax
avoidance are political in the sense that all states, with budgets under strain,
face pressure from voters to claw back cash from other people, preferably
wealthy companies, tax experts and government officials say.
For European Union institutions, the struggle is less for money Apples cash
will go to Ireland if Vestager wins her case.
What Brussels is fighting for is the EUs very survival against eurosceptics like
the Brexiteers who persuaded Britons to quit the bloc in June.
Those populists, on left and right, from the UK Independence Party to Frances
National Front or 5-Star in Italy, have scored with voters by accusing the EU
and the executive Commission of cosying up to big, global business against the
little people.
Apple shows how you fight against populism, a senior EU official familiar with
the Commission chiefs thinking told Reuters, describing a two-pronged
strategy directed by Juncker.
One part of the strategy is a push for new global tax rules, led by EU
Commissioner for Economic Affairs Pierre Moscovici, a French Socialist former
finance minister. The other part rests on punishing the worst past abusers to
deter others.
Vestager says the goal is to change corporate culture so that businesses
anxious for their reputation stop trying to pay as little tax as possible and
choose to pay the right amount.
On Junckers political goal, he won government backing in Paris and Berlin. And
many European media also welcomed the Apple 0.14% move. Le Monde,
leftish voice of establishment France and critic of Junckers low-tax policies
when he was premier of Luxembourg, said he had shown the zeal of the newly
converted.
Europe is changing, it wrote. Bravo, Monsieur Juncker.

Showing Voters EU Cares

(A) question that is critical if we want to restore our citizens trust in the
global economy is fair taxation, Juncker said at the weekends G20 leaders
meeting in China.
Insisting the Apple decision was taken without bias, he added: All companies
must pay their fair shares of taxes in the countries where they make their
profits.
The $14.5-billion demand which angered the United States and worried Apples
peers was engineered for shock and awe, the EU official said. Juncker sees
Vestager as what the EU president calls his Rottweiler, he added.
Apple and the Irish government say Vestager is rewriting the iPhone makers
quarter-century of history in Ireland. Apple denies that Dublin gave it tax
breaks amounting to illegal state aid.
What has changed is the politics. The financial crisis has impoverished Western
governments just as footloose young tech firms became hugely rich without
paying much tax anywhere.
U.S. Senate revelations about Apple in 2013 fueled public anger and, with some
irony, prompted the EU to start inquiries. Junckers own history has also played
a part. A conservative prime minister of Luxembourg for 19 years, he helped
transform it from industrial rustbowl to a financial hub its bigger neighbors saw
as helping businesses deprive them of revenues. Weeks after taking over the
Commission in late 2014, he faced calls to resign when deals between
Luxembourg and global corporates were splashed in world media as the
LuxLeaks affair.
He denied involvement but, aides say, the uproar helped galvanize Juncker for
a tax crackdown he had already promised. Driving his pledge to run a political
Commission to reconnect with voters alienated by out-of-touch, technocratic
elites in Brussels was a fear that his five-year term was, in his words, the last
chance to save the Union from break-up.

Legal Underpinnings
Its political in the sense that, if the Commission is prioritizing the allocation of
its resources, then clearly tax evasion and tax avoidance are very high on the
political agenda everywhere, said Sophie in t Veld, deputy leader of the
centrist group in the European Parliament. This is something that citizens are
rightly and understandably concerned about.
That political approach, Brussels officials stress, does not mean capricious or
lacking legal basis. Vestager is clear she must win in court on some untested
points of law against the best tax attorneys Silicon Valley and Washington can
buy, and against EU member state Ireland.
Asked about Cooks comments to an Irish newspaper about the EUs political
motives, she said: I dont think the courts will hear any kind of political
opinions or feelings or whats in your stomach or whatever. They want the facts
of the case.

Listen, Then Bite

Some EU officials think the anger of Cook and U.S. officials at the historic scale
of the tax demand may partly stem from underestimating Vestagers
uncompromising character.

Tall, courteous and soft-spoken, she is a woman who takes trouble to greet
captains of industry by the lift and escort them back to her office, often then
serving them coffee herself. It may wrong-foot those used to more
confrontational politicians and executives. She is a listener rather than a talker.
There are some people who are very loud but it is very important to have
a very, very, very open ear to those who are not loud, the former economy
minister and liberal party leader told Reuters on taking office two years ago.
People who work with her say she listens closely to career officials on her staff
much more than did her Spanish predecessor Joaquin Almunia, a
professional economist.
One U.S. tech giant to feel a change of approach after 2014
was Google 1.32% , with whom Almunia worked for years to reach a
compromise over concerns about its market dominance. Since last year,
Vestager has hit Google with three separate charges.
She also put an end to hesitation in Brussels by launching a price fixing case
against Russian gas giant Gazprom last year. Most current state aid tax cases,
including Apple, were launched by Almunia but competition experts question
whether he would have come to Vestagers radical conclusion. Almunias own
predecessor Neelie Kroes, now at another Silicon Valley darling Uber, said this
week the Dane had gone too far against Apple.
Some observers believe Vestager, a professional politician since her student
days, may be tempted to use cases to raise her profile and further greater
ambitions. She says not.
Predecessors have also taken on Washington, among them Mario Monti, later
Italys prime minister, who blocked a mega-merger
between GE and Honeywell in 2001 despite U.S. support for it, and Kroes, who
slapped heavy fines on Microsoft in 2008.
There may be more to come, Vestager says. Her 800 staff are looking at about
1,000 inquiries where firms may have gained an edge by cutting tax deals with
governments seeking investment.
A pastors daughter, Vestager summed up her political credo in the 2014
interview with Reuters: I was brought up with a very strong value, she said.
That you should always protect the few and the small against those who want
to misuse their muscle.
QUESTIONS TO ANSWER
1. Is Apple ready to deal with the international outcomes of politics involved in
this situation presented in Ireland? Explain.
2. There are 4 main effects of these political factors on business organizations
such as : (i) Impact on economy,(ii) Changes in regulation, (iii) Political stability
and (iv)Mitigation of risk.
Establish in order of importance how these factors can affect operations of
Apple in Ireland and therefore the rest of Europe.
3. Firms should track their political environment. Change in the political factors
can affect business strategy.

What changes does Apple need to understand as lessons learned from the
events occurring in Ireland and the European Union?
4. What is the negative impact of FDI that Ireland may face in the long term?