Rules Are Meant To Be Changed All The Time

Michael Hedges September 1, 2016 - Follow on Twitter

“When an American sees a beautiful sports car on the street he says to himself, I’m going to work hard and get one of those,” to paraphrase Australian billionaire media owner, the late Kerry Packer, quoted some thirty years ago. “When a European sees that car he thinks, how am I going to get that guy out of that car.” New evidence of this arrives daily.

The Republic of Ireland was ordered this week by the European Commission (EC) to recover €13 billion - plus interest - in unfair tax breaks afforded multinational tech giant Apple Inc. “Member States cannot give unfair tax benefits to selected companies,” said EC Competition Commissioner Margrethe Vestager in a statement (August 30). “No matter if they are European or foreign, large or small, part of a group or not.” Commissioner Vestager’s office came to this decision after a three year investigation, concluding that the Irish tax deal with Apple has been “illegal” State Aid.

To summarize the zillion terabytes illuminated by reporting, analysis and commentary, the announcement brought metaphysical joy to Apple haters, tech company haters, big company haters, American company haters as well as the usual technophobes and populists. “The EU defies Apple and launches a frontal assault on the US,” headline French right-leaning daily Le Figaro (August 30). If only now Commissioner Vestager will beat Google, Amazon, Starbucks and McDonalds into dust, oui?

The serious part of this is that Apple has, indeed, cleverly constructed an aggressive tax optimization scheme, assisted by Irish authorities. Big companies pay legions of accountants for this service, which shareholders demand. The European Commission has no direct authority over the tax policies of sovereign Member States. The twist in this decision is equating a tax policy with State aid.

“It’s total political crap,” said an irritated Apple CEO Tim Cook, quoted by the Irish Independent (September 1). Commissioner Vestager’s deftly written decision faults Ireland and, as such, any appeal, first to the European General Courts, thereafter to the European Court of Justice (ECJ), must start there. Apple would most certainly join. The Irish government, so far, has failed to agree on whether or not to pursue a legal challenge. Finance Minister Michael Noonan is for it but others want more time to consider options, including taking the money from Apple and spending it however they choose. Apple employs between 5,500 and 6,000 folks in Ireland.

The UK prime minister’s office offered “welcome” to any company seeking a low tax rate. Turkey’s deputy prime minister Mehmet Simsek quickly followed, saying his country would be “happy to provide more generous tax incentives.” The UK is slowly, perhaps not so surely moving toward an exit from the European Union. Turkey is a candidate for EU membership but many years from arrival. Totally unrelated (winkie blinkie) the Swiss canton of Geneva announced a drop in its top corporate tax rate - 13.49% from 24.2% - just hours after Commissioner Vestager spoke.

Apple is far from a minor actor in the media scene. It designs, produces and markets a range of popular devices on which more than a billion people worldwide access news, video, music and, of course, social media. The Apple brand ranked second - to Google - in Millward Brown’s 2016 Brandz worldwide value index. If the EC’s tax avoidance charge sticks, the Apple brand could suffer in some quarters. According to Q3 2016 filings, reported by TechCrunch (July 26), Apple has US$ 231.5 billion cash on hand. Commissioner Vestager made clear the real target of the Apple/Ireland decision is “stateless companies,” preferably great big ones.

With far less notice Commissioner Vestager ruled in early August that the Spanish government’s planned financial incentives for private sector companies to offset costs of digital television transition amounted to State aid. The plan ran foul of EC rules by offering aid only to digital terrestrial TV (DTT) operators and not satellite, cable or online providers. “This goes against the principle of technological neutrality and does not appear necessary or proportionate,” said the official statement” (August 5). Alas, the EC did not demand “recovery” of this State aid funding because none was actually disbursed.

An earlier EC ruling allowed State funding to mitigate the expense of dual digital-analogue transmissions by public television broadcaster RTVE as necessary to fulfil its “public service mission.” DG Competition investigations into Spain’s digital TV transition plans began in 2012. Also allowed were certain subsidies for DTT upgrades to apartment block residents.

More EC rules affecting the media and technology sectors are coming soon, thrilling some and dismaying others. A new draft of the EC Copyright Directive, widely leaked, could enshrine an ancillary copyright to anything published by a newspaper, including those brief descriptive snippets used by online news aggregators, for 20 years. Once all approvals are met, a decidedly lengthy process, Google News and other aggregators would be required to obtain a license (read:pay). On adoption of similar laws in Spain and Germany, Google simply withdrew from Spain and blocked German newspaper websites from aggregation, forcing them all to agree to license waivers. Google’s scale would certainly insure license waivers throughout the EU, smaller aggregators would be forced to shut-down. Essentially, the “fair use” principle will be dead in Europe.

Sometime next year, earlier rather than later, the EC Audiovisual Services Directive will be updated. It is expected that online services, regardless of point of origin, will be required to follow the same rules as legacy providers. Video on demand (VoD) services - Amazon Prime, Netflix, et.al. - will be obligated to offer shows and movies produced in Europe and in Member States where they operate. More exciting for each Member State is a further obligation to contribute (read:pay) a percentage of revenue toward support for national creative industries.

See also in ftm Knowledge

Media Laws-Digital Dividend

Lawmakers and lawyers are challlenged by the new digital reality. We've seen new rules proposed, enacted, dismissed and changed as quickly as technology takes a new turn. The ftm Knowledge file looks at the grand plans and their consequences. 76 pages PDF April 2013

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