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On August 30, the European Commission issued a blockbuster ruling that required Ireland to recoup, with interest, the €13 billion in tax benefits that it has granted Apple since 1991. The tax breaks, the commission held, violated the European Union’s “state aid rules” that no company should be given preferential treatment under the law.
The decision elicited a strong reaction from Apple CEO Tim Cook who denounced it as “total political crap.” He was not alone in this belief. Holman Jenkins, Jr., writing in The Wall Street Journal, for example, said the decision was motivated by the European Commission’s desire to impose “tax harmonization” on all EU members as a way of “defending Europe’s stagnant social model,” which could not generate any Amazons, Googles, or Facebooks on its own. The United States Treasury echoed the same theme in a white paper that anticipated the EC’s ruling. And now Ireland, backed by Apple and Treasury, has decided to appeal the EC decision to the European Courts. Who is right, and why?
My initial judgment—always subject to revision on the strength of additional information—is that the EC was correct in its decision. In making this assessment, I admit that I harbor a deep suspicion of the EC in its multiple roles. In general, there is much to the charge that the EC’s policies are prejudiced against American companies that do business in the EU. But it is one thing to start with a strong presumption, and another to put the pieces together in a prudent fashion.