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Ireland is facing another tax battle with the European Union and this time it will have to fight its own corner.
Less than two months after the European Union ordered Ireland to claw back a record 13 billion euros ($14.2 billion) from Apple Inc., saying the nation illegally allowed the iPhone maker to reduce its tax rate, the European Commission will propose legislation for a Common Consolidated Corporate Tax Base on Tuesday. A 2011 initiative failed to muster the unanimity needed largely because of opposition by Ireland and the U.K.
With Britain preparing to quit the 28-nation bloc, the fresh CCCTB proposal risks leaving Ireland politically isolated when national governments start getting their teeth back into the nitty-gritty.
The tax proposition, aimed at strengthening the European single market that Britain has championed, highlights the limits of the U.K.’s commitment to the EU and the extent to which political ideology can trump the country’s economic goals. The plan would save cross-border companies the cost of complying with different rules in each EU country where they file a tax return by establishing a single method for calculating taxable profits.
The U.K. and Ireland have opposed a common EU tax base for fear it would open the door to a harmonization of rates, which both countries say must remain their sovereign right to decide. For Britain in particular, European tax initiatives over the years have been deeply unwelcome because they’re politically toxic domestically. The Brussels-based commission denies the proposal would be a first step toward harmonized rates in the EU, arguing the goal is more tax transparency and fairness.
Ireland risks further isolation because the common tax plan is also aimed at hindering those trying to avoid paying levies, and the Irish government is already under fire for allegedly cutting the sweetheart deal with Apple. Ireland and Apple both vowed to fight the decision in the EU courts.
The impact of Brexit will also be felt this week in another small European country, this one outside the EU: Switzerland. Commission chief Jean-Claude Juncker is due to talk to Swiss President Johann Schneider-Ammann on Friday to try again to reconcile the country’s 2014 referendum on curbing immigration with a 1999 EU-Switzerland agreement on the free movement of people.
While Switzerland is seeking to enact the plebiscite with a “light” plan that would sidestep quotas for newcomers from EU nations in favor of a requirement that job vacancies be listed at Swiss unemployment centers, the bloc has expressed reservations about procedures for settling any future disputes. Those draft measures, the EU argues, unfairly favor Switzerland.
Before the U.K.’s June referendum in which 52 percent of voters opted to leave the EU, the bloc might have been more willing to fudge over the relatively obscure issue of dispute settlement. In the wake of the Brexit vote and U.K. Prime Minister Theresa May’s vow to give priority to regaining national control over immigration, such flexibility would pose risks.
The other 27 EU countries and the commission are keen to avoid setting a precedent that could undermine their fundamental common position toward Britain: retaining privileged access to the European single market requires accepting the bloc’s tenet on the free movement of people.
The underlying threat is that a failure to settle the EU-Switzerland disagreement over the Swiss immigration plan would jeopardize a total of seven 1999 agreements between both sides including the one on the free movement of people. That’s because there’s a “guillotine clause” that foresees the end of all if one is terminated.
After abandoning what would have been flagrant challenges to the free-movement pact and coming a long way to meet EU demands, Switzerland is now talking tough. Its finance minister, Ueli Maurer, on Oct. 20 dismissed the need for further talks with the EU should the parliament in Bern stick with the plan currently on the table. A commission spokesperson declined to comment on Maurer’s remarks.
Juncker’s response to Schneider-Ammann on Friday may signal just how determined the EU is to use Switzerland as an example for the upcoming Brexit negotiations.
By Jonathan Stearns (Bloomberg)