Tuesday 30 August 2016 5:39 pm

Brexit Britain could be new sweetheart after EU-US relations soured by Apple tax ruling

Souring relations between the US and Europe in the wake of the EU competition watchdog ordering Apple to pay a record multi-billion pound tax bill could hand the UK a post-Brexit boost.

Britain could be the big winner from the tax feud between Europe and the US after the EU competition commission ruled Apple should pay a record €13bn in back taxes.

It could position itself as a more attractive destination in the region than Ireland, the Netherlands and Luxembourg, where the majority of the biggest US tech companies are headquartered, away from the growing stranglehold of state aid laws and EU Commission, which Ireland accused of trying to influence tax policy.

Apple slammed the ruling by competition commissioner Margrethe Vestager after a two year investigation which concluded it paid an effective tax rate of less than one per cent in 2014, amounting to state aid and compelling Ireland to collect a decade’s worth of back taxes. Both Apple and Ireland will appeal the decision, a process which is expected to take several years to make its way through the courts.

Read more: Apple handed €13bn tax bill over "sweetheart" Irish deal by EU

Apple finance chief Luca Maestri called the ruling "devastating" for the European economy while chief executive Tim Cook essentially accused the commission of moving the goal posts.

"Beyond the obvious targeting of Apple, the most profound and harmful effect of this ruling will be on investment and job creation in Europe. Using the Commission’s theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed," he said, adding that it remained committed investing in Ireland.

The US Treasury said the ruling would "undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the EU" after last week warning the commission of the “chilling effect” it was likely to cause to investment.

Apple is also among a group of top Silicon Valley firms to have warned the Netherlands that changes to its tax regime would risk foreign investment and jobs.

ETX Capital analyst Neil Wilson said: “This is building into a tussle between the EC and US companies, but it’s also a turf war between US and European regulators. For Apple and others like it, this could be a watershed. Caught between an aggressive EC and the Obama regime’s clampdown on tax inversions, it’s looking increasingly tough for multinationals to avoid paying the going tax rate.

“Britain could benefit. If Ireland cannot offer sweetheart deals within the EU, the City of London can perhaps offer something more appealing outside the bloc.”

John Cassels, an EU competition partner at law firm Fieldfisher, said: "The political context to all of this is important. The EU-US negotiations on TTIP look to have failed. The US has expressed concern about the Apple investigation even before the level of the recovery amount was known. There could be a significant backlash against the EU from across the Atlantic and perhaps a greater appreciation of or positivity towards the UK's Brexit vote."

A more favourable rate could be implemented regardless of the terms of negotiating Brexit as tax regimes are set at member state level.

A so-called hard Brexit, going it alone and not remaining a part of the single market, would mean state aid rules would no longer constrain UK tax policy, said Linklaters partner and state aid specialist Natura Gracia.

Read more: Here's what Apple has to say about that €13bn tax ruling

“Remaining a part of the single market in some form could mean that the UK is still subject to the same state aid rules which were applied in the Apple case. Norway for example, part of the economic area but not the EU, must abide by the state aid principles. Applying different levels of taxation to different sectors can be a bit of a legal grey area under state aid principles," said Gracia.

However, any tax regime change would also have to be seen as fair following the very the public row over the tax paid by Google and Facebook in the UK earlier this year.

A tax offer to tech companies, both established and emerging startups, would be more possible outside the EU, one former special advisor to the government told City A.M..

“Tech firms like all others need to contribute to the society they operate in – including by paying a fair share of taxes. One-time Davids who have become Goliaths need to adjust to the responsibilities that come with their new size,” the insider said.

Former chancellor George Osborne announced plans to cut the UK's corporate tax rate to 15 per cent to build a "super-competitive" economy in the wake of the Brexit vote. His successor Philip Hammond is considering whether to continue with the plan with an announcement expected in the upcoming Autumn Statement, however the early move by Osborne was criticised as "not the right way psychologically to prepare this [Brexit] negotiation," by the former chief of the World Trade Organisation Pascal Lamy.

Read more: Ireland "profoundly disagrees" with the EU's Apple ruling

The government would also have to balance the potential gain to the economy from inward investment with the reduction in tax going into the public purse. 

And amid the Brexit negotiations there may be bigger fish to fry, said one tech industry expert, such as skills and immigration, while the "fundamentals" of the Irish tech scene remain in place despite the ruling.

"There are bigger wins we could address. Tax as part of the mix of things is appropriate, but we wouldn’t want it to be at the cost of more fundamental issues," said Russ Shaw, founder of industry group tech London advocates.