- The Washington Times - Tuesday, August 30, 2016

Hailed as a breath of fresh air across the Atlantic when he took office eight years ago, President Obama will leave office soon with the state of U.S.-European economic ties in deep crisis.

The White House and top lawmakers from both parties on Tuesday were sharply critical of a record-setting $14.5 billion-plus tax penalty levied by European Union regulators against American computer giant Apple, on the same day that leading officials in Germany and France were declaring that Mr. Obama’s ambitious free trade deal with the EU had essentially collapsed.

The Apple ruling had the Treasury Department warning that European regulators were in danger of “undermining the important spirit of economic partnership between the U.S. and the EU.”

The U.S. and the EU had long seen themselves as “friendly competitors” in the drive to spur global economic growth, but “now we’re seeing each other as increasing obstacles to this,” said Heather Conley, a former top official on European affairs at the State Department under Mr. Obama and now director of the Europe Program for the Center for Strategic and International Studies. “And we’ve got to get out of this dynamic quickly.”

U.S. officials made no attempt to hide their anger at Tuesday’s ruling by the EU’s executive European Commission that Apple and the government of Ireland essentially conspired to avoid paying some $14.5 billion in taxes over the past decade — 40 times larger than any previous penalty levied by the commission. Antitrust commissioner Margrethe Vestager said an EC probe had found Apple had been given an “illegal tax benefit” that allowed the hugely profitable computer and smartphone maker to pay an effective tax rate of just 0.005 percent on profits in 2014.

Even though Irish officials also protested the ruling, “member-states cannot give tax benefits to selected companies — that is illegal under EU state aid rules,” she said.

With other American corporate icons such as Starbucks, McDonald’s and Amazon facing similar actions from EU regulators, the White House, Treasury Department and key lawmakers from both parties were quick to denounce the EU action. Apple immediately vowed to appeal the ruling.

“We are concerned about a unilateral approach” by the EU in the tax dispute, White House spokesman Josh Earnest told reporters Tuesday, adding the Obama administration has been working with Apple behind the scenes as the EU dispute was coming to a head.

Since any tax payment in Europe would be deducted from Apple’s tax obligation in the U.S., Mr. Earnest said the ruling amounted to “a transfer of revenue from U.S. taxpayers to the EU.”

Anger on the Hill

The reaction was even more heated on Capitol Hill.

House Ways and Means Committee Chairman Kevin Brady, Texas Republican, called the Commission decision a “predatory and naked power grab,” while fellow Republican and Senate Finance Committee Chairman Orrin G. Hatch of Utah said it appeared EU officials were “target[ing] U.S. business by rewriting already existing tax policies.”

The anger was bipartisan — Sen. Ron Wyden, the ranking Democrat on the finance panel, said the Apple ruling was a “dangerous precedent that undermines our tax treaties,” while New York Sen. Charles E. Schumer, the chamber’s third-ranking Democrat, called it a “cheap money grab.”

The clash over tax policy comes as another of Mr. Obama’s top economic priorities appears to be in serious jeopardy.

The Transatlantic Trade and Investment Partnership (TTIP) was seen as the European equivalent of Mr. Obama’s Trans-Pacific Partnership free trade pact with rising Asian nations. But like the TTP, the TTIP is facing serious headwinds, with top officials in Germany and France this week pouring cold water on hopes the deal could be completed by the year-end deadline.

“France prefers to look things in the face,” President Francois Hollande said in an address Tuesday. “These discussions cannot result in an agreement by the end of the year. The negotiations have bogged down, the positions have not been respected, the imbalance is obvious.”

Ms. Conley noted that anti-trade electoral pressures are cutting into support for trade deals in Europe just as Democrat Hillary Clinton and Republican Donald Trump are competing to criticize trade deals on the campaign trail in the U.S. A Bertelsmann Foundation poll showed that support for the TTIP in Germany — which holds elections next year — has gone from 55 percent in 2015 to just 17 percent now.

Mr. Obama, who has insisted both the Asian and European trade deals still have a chance of passage, is dispatching U.S. Trade Representative Michael Froman to Brussels next month in a last-ditch push to strike a deal before Mr. Obama leaves office in January.

“I anticipate that when he travels to Europe in mid-September that they’ll be engaged in substantive discussions, and hopefully will be able to make some additional progress,” Mr. Earnest said.

House Speaker Paul D. Ryan was one of a number of lawmakers saying the Apple case should serve as a spur for U.S. tax reform. U.S. multinationals like Apple often keep billions of dollars in taxable profits overseas rather than pay a hefty tax bill when they bring the money home to the U.S.

While slamming the European Commission move as “awful” and a “direct violation of many European countries’ treaty obligations,” Mr. Ryan argued, “this is yet another reason why we need to fix our tax code. We need more American companies to invest their money and create jobs right here in the United States.”

There has been a long-running battle between EU regulators and the Irish government, which has used its low 12.5 percent corporate tax rate as a way to attract international investment and recover from a brutal economic and financial downturn. EU officials argue that the Irish government has allowed companies such as Apple to set up a nominal headquarters operation on the island and, through creative accounting, contend that virtually all of their taxable profits from around the world were actually generated inside Ireland.

The European Commission is not fining Apple so much as it is ordering it to pay the “correct” amount of taxes — some $14.5 billion and an estimated $6 billion in interest. Ms. Vestager all but invited other EU states to demand a bigger tax payment on Apple sales inside their borders as well.

Fighting Irish

Although the ruling represents a potential windfall for the Irish government coffers, officials in Dublin said they would join with Apple fighting the decision. Irish Finance Minister Michael Noonan said the country’s right to position itself as a low-tax, investor-friendly haven within the EU was at stake.

“It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment,” he told state broadcaster RTE. Ireland, he added, would fight “to defend the integrity of our tax system, to provide tax certainty to business and to challenge the encroachment of the EU state aid rules.”

In challenging Apple, the European Commission picked a target that could afford to settle. The company earned a record $18 billion in 2015, and reported nearly $215 billion in cash, cash equivalents and securities held just in its foreign subsidiaries.

But Apple officials Tuesday also vowed to fight the ruling, warning the EU policy “will have a profound and harmful effect on investment and job creation in Europe.” Apple employs about 5,500 people in its Cork-based Irish base, about a quarter of its European workforce.

“The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process,” Apple said in a statement. “The Commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money.”

With a long legal battle expected, the ruling did not appear to rattle investors on Wall Street. Apple’s stock was down just 82 cents, less than 1 percent, to $106 on the Nasdaq market Tuesday.

Dave Boyer contributed to this story.


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