The EconomistSeptember 28th 2019 Business 61M
argrethe vestager, the steely Dane
who forged her global reputation by
waging war on Silicon Valley tech firms and
corporate tax dodgers, was offered a rare
second term as the European Commis-
sion’s competition tsar earlier this month.
However part of her legacy is now under in-
tense scrutiny as tax-shy multinational
companies try to contest her tough-mind-
ed tax-rulings.
The most well-known of these is her de-
mand that Apple repay a huge €13bn
($14bn) sum to Ireland, which the eu’s Gen-
eral Court is still chewing over. But two oth-
er judgments offer a sense of whether the
courts will back up her mission to revolu-
tionise the taxation of multinational com-
panies in Europe. The cases are complex,
but the overall message from the judiciary
to Ms Vestager is “proceed—but with cau-
tion, because the court is watching,” says
Pablo Ibáñez Colomo at the London School
of Economics.
The first case involves Starbucks, which
Ms Vestager ordered in 2015 to cough-up
some €30m ($33m) in unpaid taxes in the
Netherlands. She had argued that the exist-
ing tax arrangements the coffee-seller had
set up with the Dutch government’s ap-
proval involved transactions between the
firm’s subsidiaries that did not take place at
arm’s length using market prices.
The General Court upheld the principle
that Ms Vestager was entitled to insist on
arm’s length treatment. But it found that
she was not entitled to stipulate the precise
methodology that countries use. As a result
it overturned Ms Vestager’s ruling. Star-
bucks was able to raise a Pumpkin Spice
Latte in victory and low-tax states fearing a
stealthy attempt to harmonise European
tax policy heaved half a sigh of relief. But
the big picture is that the ruling actually
helps establish the eu’s right to insist on
market-based tax arrangements, which big
firms will hate.
The second case was a straight win for
Ms Vestager. In 2015 she ruled that Fiat
Chrysler (whose chairman, John Elkann,
sits on the board of The Economist’s parent
company) should pay up to €30m in Lux-
embourg, because its arrangements did
not match economic reality. The General
Court upheld this decision. The carmaker
may now appeal to the European Court of
Justice. Mr Ibáñez Colomo reckons its odds
of success are less than 50%.
Brussels-watchers and executives inCupertino, California will inevitably won-
der what clues the judgments might give
about the General Court’s deliberations on
Apple. The technical answer is not many.
The Starbucks and Fiat cases were about
transfer prices between firms’ subsidiar-
ies, whereas the iPhone maker’s case is
about how its vast profits are allocated be-
tween its subsidiaries.
Nonetheless the mood music now isthat while Ms Vestager may lose some bat-
tles in the courts there is little sign so far
that she is about to lose the war. Indeed she
continues to open up new cases—in Janu-
ary, for example, she announced an inves-
tigation into the tax treatment of Nike in
the Netherlands. In the confrontation over
tax between big business and Ms Vestager,
neither side is likely to roll over any time
soon. The stakes are too high. 7The euhas clobbered corporate tax
evaders. Will the courts back it up?Corporate taxIn the dock
I
f criticalaccoladeswerethesole
measure of well-being, Netflix and hbo
would be in great shape. At the 71st annu-
al Emmy Awards, held on September
22nd, the two accounted for three of the
eight nominees for Outstanding Drama
series, and two of the seven for Out-
standing Comedy. Yet though content
may be king, both companies are facing
angry crowds wielding pitchforks.
Netflix has long framed its aggressive
spending as part of a strategy to dom-
inate people’s leisure time, but investors’
patience is being tested (see chart). Total
returns have tumbled. Subscriber num-
bers in America fell earlier this year for
the first time since 2011. Undeterred,
Netflix keeps splurging on original and
licensed content. It reportedly paid over
$500m for the rights to “Seinfeld”. Thoughhboiswidelyconsidered to
be the most profitable boutique network
in America, its parent company, at&t, is
under fire. Elliott, an activist fund with a
$3.2bn stake in the conglomerate, has
taken aim at at&t’s strategy, including a
recent acquisition spree. After splashing
out on Directv, Time Warner (which
owns hbo) and other assets, at&tsits on
over $170bn of debt, far more than any
other company in its industry.
Both Netflix and hboface stiffer
competition. Disney, Comcast (via its
nbcsubsidiary) and Apple plan to launch
streaming services within the next year.
“Fleabag”, co-produced by Amazon,
bagged the Emmy for best comedy series.
With over 500 scripted series being
released each year, this battle for leisure
time will make for gripping viewing.Enthusiasm curbed
TelevisionViewers love Netflix and hbo. Investors are getting antsy*Q2 †AT&T’sacquisitionofTimeWarnercompletedShow downSources:TelevisionAcademy;pressreports;Kagan;
companyreports;DatastreamfromRefinitivTotalreturns,June15th2018†=100 UnitedStates,paidsubscriptions,mEmmy Debtas%oftotalcapital
nominationsEmmyprimetime
awards03060901201502013 15 17 19HBONetflix036912152013 15 17 19HBONetflix02040602011 12 13 14 15 16 17 18 19*Netflix HBO Cinemax2018 2019406080100120140NetflixAT&T0204060802013 14 15 16 17 18 19*Netflix AT & T