This week, there’s been a major breakthrough in global governmental efforts to get big tech companies to pay their fair share of tax.
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In the USA the decision has sent shockwaves through Congress with lawmakers said it could reduce the USA tax bill because companies would be eligible for foreign tax credits.
Now, the European Commission has ruled that Apple must pay almost $19 billion in back taxes to Ireland.
Ireland’s extraordinary growth previous year was fuelled by multinationals taking advantage of controversial new tax breaks, experts have revealed.
“If the government chooses not to accept the 13 billion euros at a time when they have stated the money is not there for other spending needs, it could undermine them in the eyes of the public and weaken their position”, he said.
Apple and Dublin said the USA company’s tax treatment was in line with Irish and European Union law and they would appeal the ruling, which is part of a drive against what the EU says are sweetheart tax deals that usually smaller states in the bloc offer multinational companies to lure jobs and investment. Some called it a new brand of protectionism.
The EU began investigating tax-break programs of Ireland and two other countries in 2014, looking at their treatment of Apple as well as other multinationals such as Starbucks.
In Congress, lawmakers in both parties have urged the Treasury Department to be tougher on European officials as they aggressively investigate what they call undue tax benefits given by member nations to leading USA companies.
Lew’s comments came in an appearance at the Brookings Institution where he previewed President Barack Obama’s goals at the Group of 20 major economic powers summit this weekend in Hangzhou, China. Charles Schumer, D-N.Y., who is likely to become the next leader of his party in the Senate. “Slamming a company with a giant tax bill – years after the fact – sends exactly the wrong message to job creators on both sides of the Atlantic”.
Congress has been debating for years how to deal with this growing stockpile but disputes between Democrats and Republicans over how to overhaul corporate taxes has stalled action.
They say that the companies hold the money in no-tax or low-tax havens like Ireland to ensure it stays out of the reach of fiscal authorities. Shame on Apple for dodging US taxes.
More than 700 USA companies operate in Ireland, including Facebook, Pfizer and Google.
“In the US, states can fall all over themselves to offer subsidies and loopholes, but that is exactly what is illegal in Europe”, said Edward D. Kleinbard, professor at the Gould School of Law at the University of Southern California and a former chief of staff to the congressional Joint Committee on Taxation. “They wouldn’t be bringing this money back to the US anyway”.
This week, the European Union ordered the company based in Cupertino, California, to pay $14.5 billion in back taxes to Ireland plus billions more in interest.
Experts said the administration was unlikely to take such a drastic measure, and even if it did, courts might strike down that action because of treaties. Ireland’s corporate tax rate is 12.5 percent, compared with 35 percent in the United States.
However, a trade group representing USA technology companies said it is concerned the European Union will hit other firms with retroactive penalties.
“When investigation-target companies have grown to the size of Apple, they can reach out for political support”, he said.
It remains to be seen if corporate tax reform will be a priority for the next administration, but the language used by both Clinton and Trump on the campaign trail suggests it is a strong possibility.
Clinton has released a formal proposal to prevent corporate inversions and to reward companies that keep their operations in the United States.
Until those questions are resolved in court, the commission’s move could spawn widespread ambiguity for all sorts of multinational companies operating in Europe, and relying on tax arrangements similar to the one between Apple and Ireland.
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If the US and European Union step up their efforts to battle tax evasion, they could end up fighting over taxes of multinationals.
