A special deal for Scotland? No chance.

Nicola Sturgeon has accused the UK Government of “ignoring Scotland’s voice” on Brexit. I’m not sure what else the First Minister can expect given that she spent the past six months making demands she knows can never be met. The Scottish Government intervened in Miller on flimsy grounds in the futile hope of securing a veto for Scotland over the UK’s exit from the European Union – knowing full well (as, I think, likely every lawyer in the country did too) that they stood absolutely no chance of success.

Similarly, the First Minister has peddled the myth that it would be possible for some kind of special deal to be struck that would allow Scotland to remain in the EU/EEA/EFTA/single market (these have been used interchangeably). But such a deal is not possible, as I have articulated before. This is for three reasons.

The first, is international law. Scotland is not a sovereign state – it has no legal personality. As Scotland is not an actor in international law, it cannot enter into treaties with other countries. There is no non-independent region in the world (save, possibly, for the Emirates) with the powers that would be necessary to participate in participate in an international organisation like the EEA.

The second hurdle is domestic, and significant. Since early cases such as Costa v ENEL, it has been clear that single market rules are supreme, and rank above all other forms of domestic law. While this wouldn’t pose any problem where Scotland’s devolved competences are concerned, it’s not clear what would happen should single market rules come into conflict with the powers reserved to Westminster. Of course, the UK could devolve those powers necessary for Scotland’s participation in the single market – the trouble is that’s basically all the powers: full fiscal autonomy; regulation of all markets (financial services, energy, telecoms, etc); immigration, naturalisation, and citizenship; competition law; employment law; product standards; consumer protection – to name but a few. Were this to happen, there would be little left of the United Kingdom, save for a currency union and a defence pact. Scotland would be, de facto, independent.

The third problem is EU/EEA law based, and is possibly even more challenging. The EU/EEA’s institutions are designed for independent sovereign states. There is no provision in the treaties for the participation of a non-sovereign territory. Two years ago the worst case scenario was that an independent Scotland would have to follow the EU’s accession procedures set out in Article 49 of the Treaty on European Union. However, when compared to what would be required for a non-independent Scotland to join the EEA the accession process looks like a breeze. Nothing short of substantial changes to the EU and EEA treaties would be necessary to accommodate a non-sovereign Scotland. Even if Scotland could persuade the EU institutions to go along with this, Scotland still comes up against the same brick wall as it would have done post-independence, which is states with their own secessionist movements such as Spain and Belgium. If Scotland gets to participate in the EEA/EU without independence, you can guarantee that Catalonia, the Basque Country, Flanders, and Wallonia (just for starters) will want the same. You can also guarantee that Spain and probably Belgium would veto it – as is their right.

The opposition needs to call out this daft idea for what it is: a complete fabrication designed to stoke the flames of grievance.

It’s clear that the SNP has no interest in securing the “best deal for Scotland” when the only proposals they have thus far made are manifestly impossible. A far more constructive approach would be to lay dibs on the powers being repatriated from Brussels that they believe would be best exercised in Scotland. Agriculture and Fisheries would obviously be top of the wish list. The devolution of labour law and company law would allow Scotland to take a different path from the race to the bottom that the Government in London seems keen to pursue. While absent concerns about compliance with EU law, VAT is one of the best candidates for further fiscal devolution.

If Nicola Sturgeon truly wants the best deal for Scotland she should stop the shadow boxing and start drawing up a wish list that’s actually deliverable.

Ticket Touts Aren’t The Problem – Greedy Artists Are

As an avid gig goer, I know all-too-well how frustrating it is not to get tickets to a band you really want to see. As someone who has been a Bruce Springsteen fan since I was a teenager it becomes particularly frustrating when an artist becomes “legendary”.

Whenever tickets to a hugely high-demand event go on sale it’s certain that within minutes of tickets being sold out huge numbers of them appear on aftermarket. This understandably leads to outrage among those fans who missed out that something they attempted to buy five minutes ago is now being sold at as much as ten times the price.

The focus of public vitriol are invariably ticket touts, companies like Ticketmaster, and aftermarket sellers like GetMeIn and SeatWave; while comparatively little ire is directed towards greedy artists who also profit from aftermarkets.

It’s astonishing how many avowed free-marketers suddenly have a problem with the free market when they don’t get U2 tickets. Fine Gael TD Noel Rock has proposed a bill to outlaw selling tickets at above face value. Many right-wingers have described the practice as “profiteering”, which so far as I can tell simply means making a profit in a way they disapprove of. Those who make these arguments usually do so largely in ignorance of how the music industry actually works.

A Glastonbury ticket with photo ID

There is, of course, no need to legislate to prevent ticket touting. It’s perfectly easy for artists and promoters to stop touting of their tickets, should they so wish. When you go to a Radiohead gig you have to present the credit card with which you bought the tickets, much like at a train station. Glastonbury passes include a photographic ID. With the advent of e-ticketing and tickets you print off yourself it’s perfectly possible to only release tickets on the day of the gig, which would eliminate all but the very last-minute touting at the venue gates. So given that it’s actually so easy for artists and promoters to stop touting – why don’t they? The answer is simple: it’s the artists and promoters who are the biggest racketeers of the lot.

It’s normal practice for artists and promoters to hold back a large proportion of tickets from the primary sale. In one reported instance Justin Bieber held back 92% of the tickets for a gig from the public – meaning a paltry 940 out of 12,000 seats were sold as normal, face-value tickets.

Almost as soon as ticket sales close there are hundreds of them on aftermarkets such as SeatWave at massively inflated prices. It’s implausible to the point of near-impossibility that so many tickets could be on sale so quickly by touts. It’s highly probable that the vast majority of those tickets (possibly even all of them) are tickets that were never on sale to the public in the first place.

The problem, of course, is that the tickets in the primary market are vastly under-priced given the demand. Consequently, whether or not you actually get tickets isn’t the product of a functioning marketplace – it’s a lottery. The demand for U2 tickets would have been significantly lower had they been priced at €200, rather than €70 – but this would have made U2 look greedy. Alternatively, a more transparent way of pricing tickets would be similar to the way that airlines price seats on planes: the first seat sold is £1; the last seat is £200 – because there are always people who will pay well over-the-odds to get that flight in an emergency. So too will there be fans who will pay ridiculous prices to see these bands – the aftermarket wouldn’t exist if there weren’t. But again, this would be quite transparent, and artists’ greed would be plain for all to see.

So the secretive aftermarket provides the perfect cover, and a patsy-to boot: the touts. Artists get to look like they’ve priced the tickets fairly, and greedy touts get the blame for profiteering. But the reality is that the real profiteers (look, I’m doing it now) are the artists and their promoters.

So if you’re looking for someone to blame because you didn’t get U2 tickets don’t blame touts – it almost certainly wasn’t them. Blame greedy U2 and their promoters LiveNation – who, by happy coincidence, also own Ticketmaster, SeatWave, and GetMeIn.

#AppleTax: The Commission’s bluster shrouds a shaky legal foundation

apple-taxToday’s sensational, though not entirely unexpected Commission decision, that Apple has been a beneficiary of state aid from Ireland, in breach of Article 107 of the Treaty on the Functioning of the European Union (TFEU) has resulted the bizarre situation where a massive company has been told to pay the state billions in tax, only for the state to say “we don’t want it!” The decision is hailed as a victory by tax justice campaigners, but the reality is that this decision is a travesty for anyone who believes that rulings about tax liabilities should be based upon what the law is, and not what the arbiters wish the law is.

Article 107(1) TFEU provides that:

Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.

The classic state aid scenario is one in which a government funnels money or resources towards an undertaking (usually a company) it favours in preference to others. However, in recent decades, it has been commonly accepted that such treatment also includes allowing an undertaking not to pay for something that it otherwise would.

It therefore follows that the Commission has to establish that the state in question granted favourable treatment to Apple specifically. However, rather than doing so, the Commission’s statement today provides little more than a tirade of obfuscation and bluster, containing what could only be deliberate misrepresentations of the nature of international tax law, presumably to distract from the fact that their decision appears to built on an extremely shaky legal foundation.

The Commission repeatedly references the allocation of profits to a “head office” (their quotation marks), claiming that no such “head office” actually exists. Such nomenclature is misleading, as no such terminology exists in either Irish or international tax law. Under both international and Irish tax law, profits are not “allocated” to head offices and subsidiaries. The “first bite of the apple” (as we call it) goes to the source of the income – a jurisdiction in which the enterprise has a fixed place of business through which the business of the enterprise is wholly or partly carried on. Only those profits which arise through the activities of that establishment are attributable there, notwithstanding whether or not profits from other activities are also sourced within that state. In other words, the threshold for attributing profits to a permanent establishment is very high, and that is the sole jurisdiction Ireland has to tax the profits of a non-resident enterprise.

The residuary rule in international taxation is that profits that cannot be explicitly attributed to a permanent establishment are taxable only in the jurisdiction in which the enterprise is resident. Ireland, in common with most common law jurisdictions, uses the De Beers test of corporate residence – which is a company’s “place of effective management”. In other words, as a matter of Irish law, those “head office” profits are being allocated to America – the fact that America employs a different test of corporate residence is America’s problem, and not Ireland’s. Contrary to the Commission’s inferences, it is not Ireland’s concern what happens to the profits that fall beyond its jurisdiction.

A further concern is the following paragraph:

The amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the profits recorded by Apple Sales International and Apple Operations Europe for this period. This could be the case if they consider, in view of the information revealed through the Commission’s investigation, that Apple’s commercial risks, sales and other activities should have been recorded in their jurisdictions. This is because the taxable profits of Apple Sales International in Ireland would be reduced if profits were recorded and taxed in other countries instead of being recorded in Ireland.

This is, quite simply, not the case. First, does the Commission seriously think that other EU Member States have simply rolled over and allowed Ireland to tax profits that those Member States think are rightly theirs? Of course not. They have taxed as much of those profits as can be attributed to permanent establishments situated therein – which will primarily be sales from physical Apple Stores. Shifting jurisdiction to tax online sales requires more than simply a unilateral decision to do so by the Comission, the allocation of jurisdiction is enshrined in thousands of tax treaties, which would have to be amended. The European Commission cannot simply decide that the well-established jurisdictional boundaries that are enshrined in international tax law are suddenly not where they’ve always been. In his letter today, Tim Cook claimed that “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.” Tim Cook is right.

All of this is a smokescreen. The Commission has chosen to focus attention on this irrelevant facts and even more irrelevant opinion to disguise the fairly shaky basis upon which they have reached this ruling. There is no question that a tax advantage offered only to a specific undertaking (in this case Apple) is a breach of EU state aid rules. This therefore raises the question of the specificity of Apple’s tax treatment.

There are two possible approaches that can be taken to deciding whether or not an undertaking has been the recipient of special treatment. The first, is reference to whether or not the state intended to confer special treatment on the undertaking. This approach has been roundly rejected by the ECJ and legal scholars. The second approach, which is normally employed by the Court, is an objective one, which compares the treatment of the undertaking with that which would be considered “normal” treatment. Therefore, the only ground on which Ireland could be considered to have provided state aid to Apple is by offering them treatment that materially differed from other large multinationals.

Did the Irish Revenue Commissioners do a deal with Apple? Yes – and in the minds of irate campaigners that would appear to make this an open-and-shut case. Except that almost every multi-national enterprise trading in almost every developed country will strike a deal with the revenue on how to allocate group expenditure to subsidiaries, such as research and development, intellectual property, and management costs. These deals are called Advance Pricing Agreements, and provide enterprises with a degree of certainty as to what their costs will be (i.e. the state in which they’re investing isn’t going to retrospectively tell them that little of their group expenditure can be deducted from their gross profits). The difficulty in determining the value of these costs (pricing) is that they are dependent upon comparable market values, where no such transactions ever actually take place on an open market. Apple would never license the iPhone brand to anyone, so how the heck are we supposed to work out the actual value of the brand?! For technology companies, intangible assets such as these constitute the overwhelming majority of such companies’ cost base. These Advance Pricing Agreements are normally therefore the product of educated guesswork and tough negotiation. Therefore, the “normal” treatment of advance pricing such companies is not a specific set treatment, but a range. Like with all ranges, there will be companies at either end of this range. As the largest company in the world, you would certainly expect Apple to be at the most favourable end of the range.

The Commission’s statement today contains absolutely no references to comparable Advance Pricing Agreements in Ireland in order to determine what is “normal”, nor does their more detailed preliminary decision of 2014. The 2014 preliminary decision focuses almost entirely upon determining whether or not the Revenue Commissioners intended to confer special treatment upon Apple (by focusing on statements about how many people were employed by Apple in Cork, etc.), which has been conclusively established as irrelevant in determining whether or not Article 107 has been breached.

Having failed to demonstrate in any way why the treatment afforded to Apple differed from “normal” practice, the Commission has sought to justify its decision on a tirade of bluster about “factual or economic justification”, as opposed to, y’know, the law.