In Greek and Roman mythology, Janus is the god of gates and doors. He has two faces: one which looks to the future and another one which looks to the past. It is the image I’ve chosen to represent the current European commission whose paradoxical nature, like that of two-faced Janus, has left me and my peers somewhat perplexed.
This morning, I read the big announcement by Apple in Ireland in the Financial Times. If you haven’t heard the news yet, Apple has announced to its investors with its Q-10 filing to the SEC (p.21) (link) that if the European Commission were to decide that Ireland provided them with favorable tax treatment and state aid, the company could be liable to pay back taxes for the past decade. For Apple, this penalty would set records. Big names like Apple, Fiat, Starbucks, and Amazon have been in the sightlines of the EU Commission for some time. Only today, however, did one of these companies hint at how much damage a Commission decision could inflict upon the finances of the company.
We are at the gate of a new era in how we perceive taxing corporations. We’ve accepted that international tax system is broken and now we must choose whether we look forward to the future, or back to the past. The EU Commission’s investigations seek to determine what I described in my last post: a fair level of tax. However, the retroactive consequences of these examinations are enough to give investors cold feet.
Europe is already perceived as a creaky old place where doing business means confronting big governments and their demanding bureaucracies, but now these unpredictable witch hunts are targeting individual tax payers like those mentioned above. There is no rhyme or reason to why some tax rulings have been challenged after more than 20 years and others slip by. No official criteria have been released, but it’s not a secret that big names tend to make a bigger splash. Although we may not all like the OECD’s recommendations for BEPS, the process has been clear from Day 1. Investors and business owners know what to expect and rules will be applied uniformly across the board.
And at the same time, the other face of Janus is looking to brighten the future with the help of the CMU(Capital Markets Union). The CMU’s objective is to simplify investment in Europe across borders through developing a single capital market which allows investors and entrepreneurs alike to invest and raise money through diverse channels. It’s a chance for the unification and liberalization of a market which at present is fragmented and finite. A priority of the Juncker Commission, the CMU hopes to create jobs, enhance competitiveness, protect consumers and investors, and attract worldwide investment to the European Continent. It’s worthy to note that small and medium enterprises are the press-friendly targets of the CMU.
Voters may be satisfied with the simplified headlines in the news: big companies deserve to pay and small companies should be afforded all advantages, but how “fair” is it really to adopt a two-faced approach to business?