Apple's $14.5B Tax Debt Crafted for Populist, European Audience

A 3D printed Apple logo is seen in front of a displayed European Union flag in this illustration taken September 2. Reuters

The European Commission denies that its shock demand that Apple Inc. 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 Cook's 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 Juncker's 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—Apple's cash will go to Ireland if Vestager wins her case. What Brussels is fighting for is the EU's 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 France's National Front or 5-Star in Italy, have scored with voters by accusing the EU and the executive Commission of cozying up to big, global business against the little people.

"Apple shows how you fight against populism," a senior EU official familiar with the Commission chief's 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 Juncker's political goal, he won government backing in Paris and Berlin. And many European media also welcomed the Apple move. Le Monde, leftish voice of establishment France and critic of Juncker's 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

"The EU's message is clear," Juncker wrote for a G20 meeting in China this weekend. "All companies must pay their fair share. This is first and foremost a question of fairness. It has urgent practical implications as well. We cannot let down our schools, hospitals and public services that need this money."

The $14.5-billion demand which angered the United States and worried Apple's 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 maker's 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.

Juncker's 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.

"It's 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 Cook's comments to an Irish newspaper about the EU's "political" motives, she said: "I don't think the courts will hear any kind of political opinions or feelings or what's in your stomach or whatever. They want the facts of the case."