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The Wider Impact Of Taking A Bite From Apple

The European Commission's ruling insisting that Apple (NasdaqGS: AAPL - news) repays some €13bn (£11bn) in back taxes to Ireland (Other OTC: IRLD - news) has an impact way beyond either Apple or Ireland.

As the Irish see it, the Commission's decision infringes the right of EU states to set their own tax policies.

Ireland says it gave no preferential terms to Apple not available to other companies.

Brussels meddling in its tax affairs, Dublin will argue, makes it less competitive.

So there will be consequences for Ireland's relationship with the EU.

Ireland has deliberately set a low corporation tax rate of 12.5% precisely in order to encourage the likes of Apple to domicile themselves there and has fought hard to protect that rate when, for example, Germany sought to make tax reform a condition of Ireland's bail-out by the EU following the financial crisis.

:: Apple Ordered To Pay €13bn In Irish Taxes

Dublin is likely to resist any attempt to undermine its low-tax regime by the Commission and this decision, almost certain to be appealed by the Irish government, will increase hostility towards Brussels in Ireland.

In return, Brussels can argue that it is not singling out Ireland, as it has brought similar cases against Belgium, the Netherlands and Luxembourg, all of which have sought to set themselves up as tax havens to one degree or another in recent years.

Another big dimension of this ruling is the animosity it will stoke between the United States and the EU.

Washington says Brussels is unfairly singling out American companies.

The irony is that, for years, US authorities have been shaking down European businesses aggressively, including crushing fines handed out to the likes of HSBC, Deutsche Bank (LSE: 0H7D.L - news) , Standard Chartered (HKSE: 2888.HK - news) and BNP Paribas (LSE: 0HB5.L - news) for often trivial rule breaches.

Meanwhile, Washington turned a blind eye to the way lawyers pursued BP for often-dubious compensation payments after the Gulf of Mexico oil spill in April 2010.

Washington also resents the Commission making Apple pay back taxes to Ireland because, in theory, it reduces the sums available to be taxed by the US.

In reality, this is tilting at windmills, as that money was likely to remain offshore until America changes its tax rules.

America, unlike most major countries, taxes foreign profits that are repatriated to the US.

So American corporates, understandably, have deliberately kept their money offshore to avoid such taxes.

They now have something like $1.2tn (£920bn) parked outside America.

Apple alone accounts for around $187bn (£143bn) of that.

Brussels can also argue legitimately, that, while it has also pursued the likes of Starbucks (Swiss: SBUX.SW - news) in the past and has "live" investigations into the tax affairs of Amazon and McDonald's under way, it has gone after more European companies, such as the Italian carmaker Fiat (Hanover: FIA1.HA - news) , than it has American ones.

But the biggest point about the Commission's ruling is this: it wants to reinforce the principle that taxes are paid where profits are made.

The Commission's beef with Apple was that, by routing international sales via lightly-taxed Irish subsidiaries, it was avoiding paying taxes in other EU countries including Germany, Britain and France.

That left households and businesses in those countries paying more taxes to make up for the shortfall.

Small businesses have no say in the amount of taxes they pay.

Neither, the Commission is arguing, should big multinational companies like Apple and Google.

So what this boils down to is a bid by the Commission to make big companies pay their dues.

That is an aim it has shared with the US in the past.

However, with America more recently refusing to participate in initiatives to share bank account information between countries in a bid to reduce both tax avoidance and money laundering, there is less common ground than there once was (Other OTC: UBGXF - news) .