Flaws in the EU Project and Why They Are Allowed in 2020

on Aug 26, 2020
Updated: Dec 19, 2022

One of the reasons for the European Union project was that Europe will have one market (i.e., single market) and, thus, better negotiation powers with the rest of the world. It comes as secondary in importance when compared with the original aim – to bring peace among the European nations ravaged by wars all the time.

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The success of the project is beyond imagination. Nowadays, the European Union stands as a market of half a billion people. These are not regular economies, but ones of the most sophisticated in the world, with the Franco-German pillar in the lead.

To sell your goods and services in the single market, as an outsider, you must respect the rules set for the entire union. Negotiating on behalf of half a billion consumers gives you better terms than doing the same on behalf of a single country.

Yet, flaws do exist. Preferential fiscal treatment in some countries comes to the detriment of the entire European Union and, in the end, represents a threat to the entire project.

Ireland Standing Out as a Fiscal Paradise

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One way for companies out of the European Union to sell its products and services into the European Union is to set up a subsidiary in Ireland and thus having a foot on the old continent. The path is used by most U.S. multinationals, and not only.

Recent data reveals that U.S. multinationals booked more profit in Ireland than in all the other European countries alone in 2018. Since 2018, little or nothing changed in terms of legislation, so expect the ratios to be more or less the same. Indeed, the effective rate increased a bit – instead of paying 4.9%, multinationals pay now 7.3%, but still a fraction of what they are paying elsewhere.

So how come it is allowed such a thing inside a European Union and how long is it going to last?

The European Court of Justice (ECJ reacted in the past and imposed a €2 million fine to Ireland. But that is just a drop of water in the desert because it does not solve the issue.

The coronavirus pandemic changed the optic and priorities of all nations around the world. Hence, the Ireland taxation issue comes as secondary in importance when compared with saving people’s lives and jobs.

However it does reflect a still incomplete European Union, with many issues still to solve.