Welcome to the new world. Indeed, the OECD (Organisation for Economic Co-operation and Development) is working with more than 100 countries to stamp out tax avoidance on a global basis.
Advertisement
The European Union’s crackdown on corporate tax avoidance has landed on Apple; its antitrust regulator is demanding that the US tech giant pay Ireland up to 13 billion euros ($14.5 billion) plus interest in back taxes.
Analysts said the size of the claim underlined the Commission’s aggressive stance, but since each case involves different circumstances and tax rules, lawyers said it was hard to see if further big claims were any more or less likely.
Ireland has disputed the EU’s findings and says it hasn’t done tax deals.
Ireland ordered to clawback €13bn in back taxes.
It says Apple paid an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014. Apple has a reported USA $232 billion in cash, of which $214 billion is outside the U.S.
The trouble is that when companies can use financial engineering to pick and choose precisely where they’re taxed, it creates a financial black hole in two ways.
Can Apple afford to pay the bill?
No restatement of past earnings as yet.
Under the Irish rules, those expenses can then be offset against Apple’s profits from Europe. The Commission said this involved cutting Apple’s tax bill to nearly zero, in return for Apple building factories in Ireland. Rather than merely force Ireland to change its tax policies-or fine the country for breaking EU law-the EU has instead ordered Apple to pay the amount that EU believes it should have paid in the first place.
“Member states can not give unfair tax benefits to selected companies”, said EC Commissioner Margrethe Vestager on Tuesday. Ireland’s tax system is founded on the strict application of the law “without exception”, he said. Apple’s Irish operations had a cost-sharing agreement with the United States headquarters in which they were allowed to use Apple’s intellectual property if, in return, they paid for the American R&D expenses to create that IP.
In a letter on Apple’s website, Cook says the company has followed the law since it opened its factory in Cork, Ireland, almost 36 years ago. Given that Apple had used the system since the 1980’s, it was free to carry on at will. Ireland could be anxious about losing more foreign investments if they do not cooperate with Apple, according to BBC.
The ruling is the highest profile move yet in the European battle to make worldwide companies pay what authorities consider their fair share of EU taxes.
Apple and Ireland rejected the accusation and have both said they will appeal any adverse ruling.
State Aid is a tricky area.
When asked about the EU’s concerns about an unfair playing field within Europe, Earnest says he won’t discuss internal European Union business, but that President Barack Obama is committed to ensuring American companies and taxpayers are treated fairly. The company has been aggressive in defended its tax practices, with CEO Tim Cook testifying to Congress on the issue.
The result of the deal between Apple and Ireland, intended or not, was pretty clear: Give us low taxes, and we will give you jobs.
In recent years, there has been a great deal of increased scrutiny on the behaviour of global multinational behemoths who are able to optimise their tax affairs to an extremely high degree.
In an e-mailed statement, a U.S. Treasury spokesperson said: “We believe that retroactive tax assessments by the commission are unfair, contrary to well-established legal principles, and call into question the tax rules of individual Member States”.
Ireland has for years offered low corporate tax rates to multinationals, a common strategy among Europe’s smaller countries, including Luxembourg and the Netherlands.
Advertisement
Since early this year, Ms Vestager and US Treasury Secretary Jacob Lew, and their teams have met regularly to discuss Europe’s state-aid tax investigations. A spat between the largest trading block in the world and corporate/governmental America is the last thing that’s needed in unsettling times, but the European Union has fired some very effective shots across the bow of the corporate world (not just the United States corporate world either) and said it will not stand for such behaviours.
