August 14, 2017   10 mins

Danish unions gifted Vestager a small statue of an outstretched middle finger – in recognition of her ‘take-no-prisoners’ to a reform of unemployment benefits that she made as her country’s economy minister. The gift sits in the office of the now EU Commissioner for Competition.


Ølgod, a small, unassuming railway town in Western Jutland, lies close to the sand dunes and coarse heathland that mark Denmark’s submission to the unforgiving North Sea. Out across the grey water to Britain, rain masks the horizon. From these humble roots and steely skies comes a tough operator.

Margrethe Vestager was appointed as the EU’s Competition Commissioner in 2014 and has been relentless in her crusade against companies who do not play by the rules. She has issued record fines and pursued household names.

And what a moment she has chosen. That ‘end of history’ capitalist consensus being challenged by waves of popular anger – fuelled by the range of social miseries catalogued by James Bloodworth. Launching UnHerd’s series of articles on ‘Western capitalism on a knife-edge’, the leader of Scotland’s Tories, Ruth Davidson explained why the electorates of advanced nations are losing faith in markets – despite it lifting one billion people out of poverty in recent decades.

The loss of faith is for good reason. The cost of the financial crisis has been borne by general populations – rather than the culprits. As their banks failed, CEOs collected large pay checks with one hand while waving in the taxpayer bailout with the other. YouGov’s transatlantic poll for UnHerd found that just 5% of Britons and 12% of Americans think that those responsible for the financial crash have been adequately punished.

Moreover, it is not just bankers who have pushed the public’s patience to breaking point. Within Britain, Sports Direct paid its boss a £1m bonus while its workers suffered ‘Victorian era’ conditions1. After the collapse of the pension scheme of the BHS store chain, the long-time owner Sir Philip Green was seen cruising the Med on his £100m yacht2. The rules that apply to the many, do not seem to apply to the wealthiest few. Goliath is untamed, step forward David.

Or rather, step forward Margrethe.

The EU’s Competition Commissioner is tasked with promoting Europe’s economic growth by enforcing competition policies. In an age of much profit and little ethics, Vestager is using her office to wage an aggressive assault on corporate power. She has chased Gazprom for price fixing, fined Google for giving illegal advantage to its own shopping service, and ordered Apple to hand over €13bn of allegedly unpaid tax.

That the 49 year-old Dane has become the modern day David is fitting for the daughter of Lutheran pastors, an upbringing that helped set Vestager’s moral compass. Whereas her predecessor Joaquin Alumnia spent three years trying to reach a backroom deal with Google, Vestager just issued the fine. She refuses to meet lobbyists for fear of compromising her pitch as the champion of the small against the mighty, and of the consumer against the producer.


Annelise Dodds MP served as Labour Spokesperson on Competition while she was an MEP and reflects on Vestager’s winning formula:

“I think that Vestager has been successful in applying competition rules neutrally, but in a way that doesn’t shy away from taking on some very big players. In that way, she has shown how everyone must play by the same rules, which I think is very important.”

Vestager wants to show the people of the EU that power is on their side and has won the support of the most pro-Brexit of Tories like David Davis – as well as the likes of Remain campaigning Ruth Davidson3.

Public faith in capitalism needs a champion for the little guy – but so too does capitalism itself. 3% of EU GDP is lost every year as a result of cartels, and tax evasion costs over €1 trillion in lost revenues4. Tough action on the practices that undermine free market competition is not only what Vestager calls an antidote to populism, but a tool to make the ordinary richer. It is a principled stand that allows her to display what the EU has often been lacking: leadership on issues that matter to people. She is the EU at its best.

Vestager is tackling Germany’s powerful auto industry – as well as US tech giants

And tough she has been;

  • The Commission issued a record $4.1bn in fines in 20165. This includes the largest cartel fine in EU history issued against truck manufactures, a cool $3.2bn6.
  • And not just trucks… Her recent announcement of an anti-trust investigation against German auto-manufacturers pits her against one of the most protected corporate interests in the EU (see my recent piece on Volkwagen and its all too cosy relationship with Germany’s government).
  • She does not seem bothered by offending EU political interests. Vestager’s upcoming ruling on McDonald’s tax affairs in Luxembourg7 may prove awkward for her boss in Brussels – Jean-Claude Juncker, Luxembourg’s former Prime Minister.”

Vestager has never been one to avoid the tough battles. As leader of the small Radikale Venstre party in Denmark, she faced bitter electoral defeat in 2007. People wrote her off as a poor politician, cold and impersonal. And yet she fought on. Four years later she was Denmark’s Deputy Prime Minister and Minister for Economic and Interior Affairs. She took on the unions in a battle to reduce unemployment benefits, famously telling critics “that’s the way it is”.

Vestager earned a reputation as obstinate, formidable, and capable. Despite their very public war, the unions gifted her a statue of a hand with the middle finger outstretched. It was a mark of respect and she approved. The “F**k Finger” sits in her Brussels office, a reminder of the battles of the past and a warning to visiting CEOs that she is not done yet. The dark period after the 2007 election is said to have given Vestager clarity that leadership is about making decisions and that can make you unpopular. So you may as well take the decisions you think necessary.

And she certainly has, particularly on tax avoidance. More than anything she views this as the greatest corporate affront in an age of austerity and has been utterly ruthless in her pursuit of those deemed to be ‘dodging’:

  • Starbucks and Fiat have both been ordered to repay €30 million each in lost tax revenue;
  • Amazon could face a fine of up to €400 million under a current investigation; and
  • Apple are being chased for €13 billion owed to the Irish government.

For Vestager, the message is simple: “If you want to do business in Europe, you play by the European rule book.”

But is it that simple?

While unquestionably principled, not everyone interprets the European rule book as Vestager does. Some worry that her moral compass rather than court-proof legal mandates are driving her. Additionally, the EU seems more content in pursuing its own unilateral efforts, rather than throwing its full weight behind international cooperation.


At the centre of all tax rulings is the question of how multinational companies move profits, goods, or services between subsidiaries across international borders. Global cooperation has produced the OECD’s Transfer Pricing Guidelines which state that all transfers are priced as if they were moving between two independent companies, the ‘arms length principle’8. This forms the basis of most countries’ treatment of multinationals – who typically negotiate a pricing agreement with national tax authorities in advance. This usually governs how profit is allocated and how much a parent company might charge subsidiaries for things like intellectual property9. The OECD provides calculation methods.

That the rules are knowable, transparent, and predictable is important for the functioning of the free market. The EU also has its own rules on whether these tax arrangements threaten market competition. For state aid to be illegal, a tax deal must give one company an advantage not available to another in a ‘comparable legal and factual situation’. In previous rulings, the EU has taken the view that multinational and standalone companies are not comparable. In the rulings of Vestager’s team, they have been treated as the same (see my extended endnote at the bottom off this page if you want more on the small print of this).

This argument is at the heart of Apple’s €13bn tax bill. The EU argues that Apple’s agreement with the Irish Government was state aid because it was not available to all. The Irish disagree, arguing that it was available to all multinationals and are appealing the decision. Whoever is right, the state aid rules are being applied differently, and in Apple’s case retrospectively. They are no longer knowable, transparent, and predictable. We may cheer the public flogging of tax dodgers but it must not come at the detriment of the principles necessary for a free and functioning market. If we really want to shut down tax avoidance, the rules must be unambiguous and they must be enforced as such.

The bigger problem of course with Apple is not its transfer pricing arrangement with the Irish Government, but its exploitation of the gaps between different countries’ tax systems. Apple avoids tax by using an Irish company (Apple Operations International) into which much of its global revenue is consolidated. They pay no Irish tax because Ireland taxes companies based on where they are managed and Apple Operations International holds its board meetings in California. However, they also pay no US tax because the US does not tax overseas operations. At $250bn, Apple’s offshore pot is the biggest in the world10.

On tackling this kind of tax avoidance, it is the OECD not the EU that is leading. Their work on Base Erosion Profit Shifting (BEPS) has been focused on precisely the international tax loopholes that Apple have exploited. Over 100 countries are collaborating to implement these measures. However, the EU is now moving to create its own Common Consolidated Corporate Tax Base – a single set of rules for companies to calculate taxable profits in the EU. Herein lies a further contradiction. Not only is this a threat to competition within the EU market (it takes away the ability of Member States to offer tax breaks on investment, including R&D), in creating a separate set of rules, it risks the creation of new loopholes. There is a frustrating vanity about the EU in this – and in Vestager. They don’t want to enforce good rules, but wants to enforce their own rules.

The USA complains that Vestager discriminates against US companies

Here, Vestager’s commendable work, reflecting the best of the EU, begins also to reflect the worst: its politics. The US accused the EU of unfairly targeting US companies11. While the 2017 ‘hit list’ certainly contains some US giants, it also includes European ones and the presence of top US companies is more likely a reflection of America’s corporate might12. The US also contends that the effects of the rulings of Vestager’s team is to turn the enforcement of competition law into a supra-national tax authority13. In many ways it is worse than this. In its revised interpretation of its own rules, the EU has been challenging tax decisions legal under Member State law, not because they are necessarily illegal under EU law, but because the EU doesn’t like them. Competition enforcement has become a political tool.

The US also contends that the effects of the rulings of Vestager’s team is to turn the enforcement of competition law into a supra-national tax authority. Morally, there is little to argue with. As Dodds says “I think most people would intuitively agree that there should be a level playing field for all similar companies”. Apple and the Irish may ultimately win their appeal, and that will be unpopular with populations still enduring austerity. But that we don’t like something is not a good argument for using competition enforcement to cast moral judgements that are ultimately challengeable in court. If the rules are not keeping up with how big and global firms are operating, the rules need to be modernised rather than politicised.

If the EU really wants to tame Goliath, then it needs unambiguous rules against the corporate behaviour it wishes to stop that are in line with international efforts. Moral judgements may make us feel better, and may seem necessary given the anti-capitalist mood, but we need punishments that stick or, ultimately, public anger will grow as corporates and courts undo them.

A 2016 Foreign Policy profile of Vestager argues that “she is forging a path as the latest arbiter of what is right and wrong, fair and unfair, in the 21st Century economy – a vital distinction not just for Europe, but for the rest of the world as well”14. There is no doubt that capitalism needs Vestagers. However fearsome – even ‘f*ck you’ – the Dane can be, only the law and combined international efforts can reliably reign in Goliath.

Not that this will stop Vestager trying. As her long time adviser, Henrik Kjerrumgaard says of her:

“She is in it for the fight. Winning is a bonus.”15

For Vestager, the message is simple: “If you want to do business in Europe, you play by the European rule book.” But is she following the EU’s own rules?



In addition to ensuring that countries follow the OECD guidelines, the EU also has its own competition rules on state aid, to avoid the threat to competition that comes from a company receiving preferential tax treatment. Under the EU’s own Treaty on the Functioning of the European Union (TFEU 2007), for a tax arrangement to be state aid it must:

  1. Give the recipient company an advantage compared to the general tax system, and;
  2. Be granted through state resources (the EU assumes that any tax advantage necessitates lost tax revenue and should be treated as public spending), and;
  3. Affect competition and trade between Member States, and;
  4. Be selective (i.e. not available to another company in an equivalent legal and factual situation).

Ignoring the not-very-free-market assumption that all tax advantages necessitate a revenue loss (fiscal policy has dynamic effects that can see a tax cut increase revenue), these rules form the basis of a clear legal framework for companies operating in the EU. That rules are predictable, transparent, and knowable is important for the operation of a free market.

The problem is that the EU no longer seems to be enforcing its own rules as written. The two principles of advantage and selectivity, previously applied separately, have often been treated as the same in the rulings of Vestager’s team. An advantage offered to a multinational company is now treated as necessarily selective if it is not available to a standalone company. At the crux of it is an argument that a multinational and a standalone company are in a comparable legal and factual situation, something not backed in EU case law or in previous rulings[14. See discussion in: US Treasury, The European Commission’s recent state aid investigations of transfer pricing rulings, US Treasury White Paper, 24 August 2016].

  1. Rupert Neate, Mike Ashley paid ex-Sports Direct chief secret £1m-a-year bonus, The Guardian, 4 July 2017
  2. MP asks if Sir Philip Green’s yacht could be seized in BHS row, A UK Press Association report, carried in The Guardian, 23 November 2016
  3. In her essay for UnHerd, Ruth Davidson recommended “empowerment of consumers relative to producers as modelled by Margrethe Vestager within the EU”
  4. Report on the Annual Report on EU Competition Policy, European Parliament, 4 Feburary 2015
  5. Catherine Belton, Global cartel fines hit new high, powered by $4.1bn in the EU alone, Financial Times, 4 January 2017
  6. $3.2bn levied against five truck producers — Iveco, DAF, Volvo/Renault, Daimler and MAN — charged with colluding for 14 years in pricing trucks while passing the cost of environmental compliance on to consumers
  7. Last September the FT reported that “McDonald’s could face an order to pay nearly $500m in back taxes to Luxembourg…  According to an FT review of the commission’s McDonald’s probe, it paid an average tax rate of 1.49% on the $1.8bn profit earned by its Luxembourg-based European headquarters since its 2009 reorganisation… If the standard Luxembourg tax rate of 29.2 per cent applied to those earnings — following the broad principles the commission applied in the Apple case — McDonald’s would owe the Grand Duchy nearly half a billion dollars.”
  8. Article 9 of the OECD Model Tax Convention.
  9. Read Tom Bergin’s Special Report – How Starbucks avoids UK taxes at Reuters for an illustration of this works
  10. In May, The Daily Telegraph reported that “Apple’s cash pile has swelled to over $250bn (£194bn), a sum greater than the combined foreign reserves of the British government and Bank of England”
  11. See letter from former US Treasury Secretary James Lew, during Barack Obama’s presidency
  12. Nicholas Hurst, Margrethe Vestager’s top 10 cases in 2017, Politico, 1 February 2017
  13. US Treasury, The European Commission’s recent state aid investigations of transfer pricing rulings, US Treasury White Paper, 24 August 2016
  14. Meet the woman leading Europe’s war against Google, Gazprom, and Apple by Suzy Hansen for Foreign Policy, 18 March 2016
  15. Quoted by Suzy Hansen (link above).

Harriet is a freelance writer and self-confessed data addict. She 
was formerly Head of Policy for the Legatum Institute’s global 
Prosperity Index. Prior to that, she was Senior Parliamentary
 Assistant to a Conservative Member of Parliament.