Alberto Mingardi  

Epstein on the EU and Apple

A Community Comes Together... Paul Romer on Paul Volcker...

Richard Epstein has an article taking sides with the EU Commission on Apple. Certainly the Commission couldn't have a more eloquent advocate, and Epstein argues forcefully that the Commission "makes a classical liberal argument in favor of free trade across national boundaries. Though the EC often acts as a statist institution, it has made a sound economic decision by taking on an American icon that deserves to have its wings clipped." apple.jpg

The bulk of the argument revolves around the selective nature of tax rulings, such as the one Apple was a beneficiary of. The Commission, Epstein maintains, was not trying to impose tax harmonization, but to guarantee a level playing field.

I would like to mention two points in reply. First, Epstein comments that "harmonization in the EU is always harmonization-up rather than harmonization-down". Let's put the Apple case in perspective. Were the European Court of Justice to uphold this decision, would this trend be strengthened or weakened? (see here for a quick explanation of the next judicial steps)

Second, Epstein frames his comment in the context of the proper role of the EU Commission to foster legal certainty. True, special tax rules are certainly not generally applicable norms of the sort that classical liberals tend to like. But let's think for a minute about legal certainty in the longer run. Apple operated under clear guidelines set by the Irish government: it is not the national government which is seeking dues that weren't paid, it is the Commission that enjoins it to seek these dues, against its own will. If a company cannot rely on the government's word for the very taxes it is supposed to pay to that same government, is this going to increase or decrease confidence and legal certainty?

My colleague Massimiliano Trovato made the point that tax policy and competition policy are better kept apart (see here).

I know both these points are concerned merely with the consequences of the Apple decision. But consequences matter indeed.

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CATEGORIES: Competition

COMMENTS (1 to date)
Mark V Anderson writes:

Although I haven't looked at the details of the Apple case, from what I've read, the EU made the correct decision. I am not speaking from a libertarian point of view but from a rational government point of view.

Apple pays essentially zero income tax in Ireland. If Apple paid tax at Ireland's normal tax rate, that would entail billions of dollars in tax. One could say that Ireland paid millions of dollars for each job Apple provided, so could Ireland's policy be rational? Of course it is rational, because without that policy Ireland still wouldn't have gotten those taxes, because Apple would arrange to earn their money elsewhere. So it wasn't Ireland that lost out on those taxes, it was alternative countries, which were likely other EU countries. Since the Eu is a quasi governmental agency, it makes sense that they would have rules to prevent excessive tax competition between member countries, and that is what they've done. It is not different from a country prohibiting certain kinds of tax competition between jurisdictions in its own nation.

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