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Even After Brexit, EU’s Apple Ruling Draws US Businesses Back to UK
The European Commission in Brussels hit Apple Inc. with a bill for $14.6 billion in back taxes, payable to Ireland, which neither intended nor wished to impose those taxes in the first place. This momentous decision (Apple and Ireland are both appealing it) is sending a chill down the backs of United States investors and businesses with European operations. In February 2017, Apple filed a new legal challenge, claiming that the European Commission “made fundamental errors” in measuring Apple’s “profit-driving activities.”
Brexit doomsayers would have had you believe there was a stop sign at the intersection of U.S. and U.K. trade, in light of recent events, it rather appears the sign reads “yield.”
Whatever the outcome of Apple’s countersuit or the appellate court’s decision, those who conduct business and invest transatlantically are warming back up to the United Kingdom as the preferred port of entry into Europe, even on the heels of Brexit.
Apple decision turns the tables on Brexit opposition
The U.K. and America are strong global trade partners; Brexit doesn’t change that, even amid questions about its eventual implications on trade agreements. The United States and the U.K. are still very much open for business with each other. But the remaining members of the European Union wish to exploit those tinges of uncertainty to encourage cross-border business and investment between themselves and the U.S. The EU’s decision about Apple in Ireland, however, may gravely inhibit those ambitions.
Apple, like any prudent business, would have painstakingly determined the most advantageous place to operate within the EU. It surely counted on the guidance and assurances given it by local and national governments eager to host its job-generating operations. By all accounts, Apple operated in accordance with Irish tax law. Now it is told it owes decades’ worth of taxes to Irish authorities that never even levied them.
The ruling from Brussels is unquestionably causing many U.S. businesses with European expansion plans to pause and reconsider. Those seeking to develop a European hub, plant, facility, or base through which to expand their global operations are rethinking those moves. Ordinarily, such decisions are influenced by customer demand, costs of business operations, and economic incentives — which, of course, include tax “carrots” to entice desired forms of commerce. If the EU will override its member states’ incentive strategies and tax codes, as it did to Ireland in the Apple case, then European countries can no longer make good on their competitive tax breaks to vie for U.S business. An American company starting its foray into Europe can’t really put faith in the word of an EU member’s own taxing authorities.
Not only is U.S. foreign trade threatened by this overreach, so is the sovereignty of EU member nations. Might others seek to exit the European Union, as the U.K. did, to reclaim economic autonomy and their competitive share in the global market?
Brexit supporters are emboldened by the Commission’s decision. It gives credence to their position that separation from the EU restores the U.K.’s independence and self-governance. The U.K. must still renegotiate its trade agreements — the crux of the uncertainty caused by Brexit — within two years of its withdrawal, which will begin in the spring of 2017. (The U.K. government voted against two amendments in the House of Lords, on EU residency and veto power on the terms of exit, giving Prime Minister Theresa May the ability to begin formal exit negotiations). How it interacts with the EU and the European Economic Area will be of no small consequence in the future. But while Brexit doomsayers would have had you believe there was a stop sign at the intersection of U.S. and U.K. trade, in light of recent events, it rather appears the sign reads “yield.”
The U.K. is emerging as the preferred choice
Many privately owned U.S. businesses have long entered European markets through the doors of their English-speaking friends and generous tax hosts, the U.K. and Ireland. Brexit initially seemed to lend Ireland (and other EU countries) a leg up in the scramble for U.S. trade. Now it looks like the European Commission has handed the advantage back to the U.K.
So if you are a U.S. business looking to expand into Europe, how should you best proceed? Continue to carefully consider all commercial aspects of your global operations, including incentive strategies and tax rates that would benefit the venture. But as you make your lists of pros and cons, evaluate them in “what if” terms based on the potential outcomes of both Brexit and the EU’s willingness to assert taxation authority over member nations.