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Brexit, Ireland and European solidarity

The European Union must minimize the impact of Brexit on Ireland, but the republic must also send a sign of solidarity to the other member states. Sponging off others on tax matters is not acceptable in a bloc based on solidarity

Brexit, Ireland and European solidarity

The crucial element in the United Kingdom’s Withdrawal Agreement from the European Union – and the one that has caused the greatest rejection within the British Conservative party – is the so-called backstop. It’s the mechanism that prevents Britain from unilaterally repealing a transitional agreement to maintain the absence of border controls, if there is no agreement on an adequate alternative to this lack of a hard border. So far neither the British government nor anybody else has managed to identify any credible alternatives. Maintaining free movement throughout the Common Travel Area (CTA) mentioned in Article 5 of the Withdrawal Agreement is good for the EU, but above all, it is the answer to an unyielding demand from the Irish government.

The customs union and the CTA allow the free movement of goods, but above all, of people, and this is a crucial point in order to preserve the legal unity of the island territory, and thus to guarantee the Good Friday Agreement that marked the end of the Troubles in Ulster. The absence of a border between both territories is an essential element to those agreements: EU membership protects this suppression of border controls, and this is highly valued by the various actors involved as an element that helps achieve peace. The Irish cause is fair and important, and the EU has rightly demonstrated solidarity by putting its negotiating clout at the service of the Republic.

For now at least, the Irish government categorically refuses to review its corporation tax policies

The relevance of this issue reflects the EU’s commitment not just to the Republic of Ireland, but also to the UK, and an analysis of this commitment to solidarity must underscore that certain goals, such as maintaining peace, deserve broad concessions from the EU regardless of any possible costs. The mention of the British Overseas Territory of Gibraltar in the negotiating mandate, for instance, reflected a similar show of solidarity for Spain (although the final agreement did not reflect such a strong commitment on this matter as with the Irish issue).

There are also costs for other states: for instance, if there is a no-deal Brexit (precisely because the EU will not back down on the issue of the backstop), this would very negatively affect states such as Poland. There are a million Poles living in the UK, and the country is the biggest recipient of EU funds, to which Britain is the second-biggest contributor. Thus, the Polish government has floated the idea that there should be a time limit on the backstop, of five years.

However, European solidarity is not a one-way street where one side systematically supports the other without reciprocity. What’s more, solidarity as a principle that guides relations among EU states should exclude the temptation to make the most of an advantageous position in order to exploit one’s partners. And judging by the actions of successive Irish governments, these seem to be adopting precisely this unilateral and selective vision of European solidarity.

This asymmetry in the concept of solidarity is specifically visible on tax matters. Ireland has historically applied a much lower corporate tax rate than other EU member states (around 12.5% compared with the average of 24%). Evidently, this makes the island very attractive for multinationals, with the added advantage of access to the single European market that lets them operate throughout the territory while paying tax only where their headquarters are located. Added to this is a very lenient regime based on certain fiscal artifices. The system is even more attractive for tech companies or those operating in the new economy: a large amount of businesses, such as Amazon, Apple or even the odd Spanish company, have set up their fiscal headquarters there because of the attractive Irish tax scheme.

The European Commission has reacted to this situation: in a key decision, it considered that the tax benefits enjoyed by Apple in Ireland could be considered state aid, and ordered Apple to pay €13 billion in taxes plus interest to the Republic of Ireland. In a move that might be viewed as surprising, the Irish government initially refused to demand or collect this payment, thus evidencing its commitment to a tax system that “bleeds” the other member states: the taxes paid in Ireland are for economic activities across the entire EU, so that the states where these activities take place are in fact collecting very low revenues for it.

European solidarity is not a one-way street where one side systematically supports the other without reciprocity

For now at least, the Irish government categorically refuses to review its corporation tax policies. The Commission has reacted by proposing a Common Consolidated Corporate Tax Rate (CCCTB), whose adoption Ireland has blocked with support from the so-called New Hanseatic League (which has also made restrictive proposals regarding the euro zone budget). The governments of Germany, Spain, France and Italy have expressed support for the CCCTB. The problem is that these taxes require unanimous approval, and though the Commission has reason to believe that there could be progress in areas such as environmental levies, the plans to end member states’ veto power over the digital tax has been pushed back to 2025 (from the original goal of 2020). And naturally, this veto power can only be ended by a unanimous decision...

The latest Irish governments have also aligned themselves with the hardest positions upheld by the New Hanseatic League on the debate over euro governance reform. The Irish government, in line with the League members, questions the creation of a eurozone budget, the creation of euro-bonds, and above all, it advocates control over national budgets to prevent excessive public spending. There is a great paradox in the fact that while other countries are being subjected to “tax vampirism,” losing the revenues that go into supporting the welfare state, they are simultaneously being asked for stricter fiscal discipline on spending.

The EU should be ready to minimize the impact of Brexit on Ireland (including the economic impact) and it should get involved in the search for imaginative solutions to the border issue, including, if necessary, ways for Northern Ireland to hold semi-membership in the EU. But the Republic of Ireland must also be ready to send a sign of solidarity to other member states, because sponging off others on tax matters is not acceptable in a union based on solidarity. And perhaps this is the right time to send Ireland a clear signal about the limits of a solidarity that is viewed in such a unilateral manner.

Carlos Closa is a research professor at the Institute of Public Goods and Policies of the Spanish National Research Council (IPP-CSIC).

English version by Susana Urra.

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