Apple state aid decision expected soon
$19 billion? $8 billion? A few hundred million? Estimates are all over the map regarding the European Commission’s imminent decision on whether Apple received illegal, unnotified state aid (subsidies) from Ireland. As I mentioned two years ago, two factors go into the Commission’s claim: Ireland’s creation of a corporate entity that is taxable nowhere, and the possibility that the company negotiated a tax rate far below the country’s already-low 12.5% corporate income tax rate.
As you may remember from earlier posts, if the Commission rules against Apple, the sanction it will impose will be the repayment of the illegal subsidies, with interest. Some estimates of Apple’s tax savings are astronomical (the New York Times reported an estimate Apple saved $7.7 billion in 2011 alone), which creates the possibility of an extremely high repayment order. On the other hand, recent cases have seen relatively low repayments, such as the mere €30 million the Commission ordered Starbucks to repay the Netherlands last year. Still, it is perfectly possible that the Commission used smaller cases as a way to establish the legal precedent regarding fiscal aid before dropping the bomb on Apple.
It’s worth noting, as reported by Bloomberg, that the largest state aid repayment order ever made was approximately €1.4 billion charged to Électricité de France, followed by two orders in the €1 billion range. When this decision is announced, we may see a new record by a large margin. Or maybe we won’t. Either way, the Commission will be giving us a clear sign regarding how seriously it intends to treat fiscal aid abuses.
Update: For a little perspective on fines, Chillin’ Competition (via email) points out that the European Commission has just imposed an anti-trust fine on four truck manufacturers of over €2.9 billion , a new record.
Cross-posted from Middle Class Political Economist.
This points out the hypocrisy of state subsidies to private companies. All governments favor certain companies and types of companies over others. This article does not argue that legal corruption to crony capitalists is itself wrong. It argues that the corruption can only be in certain forms. I’ll bet that if the subsidy was in the form of loan gurantees, that would be just fine.
The two levels of corruption here are the taking of honest tax payer money that should go to more responsible objectives and the second is rewarding it to a specific crony capitalist. No government should ever be allowed to reward any particular company over another.
Diego:
Welcome to Angry Bear. 1st comments always go to moderation to weed out the spam.
Diego:
In the European Union, a loan guarantee would have to fulfill the same criteria that a cash grant, tax break, or other form of subsidy would. These include assistance to regions with low per capita income, research and development, environmental upgrading, etc. If the Commission rules that a subsidy is incompatible with the common market, the national government is not allowed to award the subsidy. If the subsidy is incompatible with the common market, and was awarded without the required pre-notification, the Commission can rule that the subsidy be repaid with interest. That is probably what is going to happen in this case.
As you say, there are inherent problems with government subsidies. In my view, the main ones are they tend to be economically inefficient, they are bad for income inequality, and they frequently have negative environmental consequences. These always have to be taken into consideration, but I think there can be occasional times when a subsidy can be a good policy. Not very many times, though.