What Apple, Amazon, Google, Microsoft, and most other big US company do is the so called "double Irish"[1]. Essentially is a clever way of using two quirks of some EU countries loopholes in tax laws, from treating IP licensing fees (of course the brand and intellectual IP is owned by a British virgin island tax haven, where else could this stuff be created/invented), and the net result is that Apple et al end up paying single digit cents on the dollar in EU profits.
And with another quirk - this time in US tax laws - the do not even have to pay taxed in the US on those earnings, as they have not repatriated the funds.
How to pay dividends/fund buybacks, without repatriating those funds? Easy: Just issue debt (which your own subsidiary in the British Virgin islands making a killing on IP licensing might want to buy) or have your BVI IP trust fund buy those shares.
Now why would other EU countries let Ireland and the Netherlands get away with these accepted loopholes is a mystery to me, especially since Ireland had to ask for a bailout lifeline, and was in no position to negotiate firmly.
Why the US would allow their truffle pigs to not pay taxes on oversea earnings is clearly the result of expert lobbying.
You don't need expert lobbying. Look at this forum, full of tax-evasion apologists who conflate pragmatism with pedantry.
Pedantry is the one of the most intellectually and emotionally bankrupt moral frameworks. It basically states that if you just think about the rules a lot, then you will find the solution.
I mean, obviously all these politicians and normal people, they've just been getting it wrong all along! To quote other commenters, "Apple did nothing illegal!" The "Tax law is a system of rules!" Just look more carefully at those random tiny rules and then, we don't have to have a discussion anymore! People who don't read the rules carefully enough: "it makes my brain hurt!" Then blame the people who write the rules, or petition for the rules.
Pedantry is the disease, not lobbyists.
I don't know how to convince the pedants though that sometimes, it's ethical to reinterpret the rules.
To clarify, I think we should be asking whether or not what Apple does is ethical. And the answer to that question shouldn't depend on whether or not we're wondering the same about other corporations.
The answer is obviously no, tax evasion / avoidance isn't ethical.
What exactly are the point of rules if you can reinterpret them in your favor as you see fit? It would be perfectly reasonable to rewrite rules going forward, but to retroactively change what the law says invalidates the point of having laws to begin with.
There is no reinterpretation going on here. Apple never asked the EU. Apple went to Ireland "hey, guys, do you think it is okay to do this?" .. Ireland said yes, but Ireland has no authority here. The EU, which has authority, checked it and said "nope, your interpretation is wrong." - Simple as that.
If I ask someone on the street if its okay to steal from the rich, he says "yes" and I steal from the rich, no one would bat an eye if the courts didn't agree with my "interpretation" of the law and put me behind bars. And no one would accept it as a legal defense if I said "but hey, that guy over there said it is okay to do this!" - why should it be different for companies?
1. They have applied their own laws in a way that amounts to subsidies, and
2. The corporate structure turned out to be fictional, and allocations of profits were therefore also fictional. ("Arm's length" and all that.)
They even open the door for national tax authorities to use their findings and evaluate for profit shifting.
This is an inspirational moment - too long have tax treaties favoured those willing to break the spirit of the law and weigh down the little man with the consequences!
I don't know, what's the point of rules if they're not enforced properly? Or if they're written by people you don't like? Or any number of problems?
I'm assailing this line of thinking in general.
Instead, can we discuss whether or not giant corporations avoiding taxes is ethical, rather than whether or not there's something up with the rules? Do you seriously believe that what Apple and other large corporations do with respect to taxes is ethical?
What ethical standard is there that can determine how much tax a person or corporation should pay, apart from tax law?
It's not like there are pre-existing moral rules in the case of taxes -- taxes exist only because of tax law; tax law defines what taxes are, who is to pay them, and how much they ought to pay. Tax law is the only authoritative standard to which someone's behavior re: taxes can be submitted.
It's not possible to determine the spirit of the tax law an objective way: the tax law is actually an accretion of a bunch of laws and amendments, passed decades apart by different people with different intentions, who were influenced by the politics of their time, lobbyists, the state of the economy, the upcoming presidential election, etc.
For example, some parts of tax law were passed by politicians who wanted to help corporations avoid paying taxes, and other parts were passed by politicians who wanted corporations to stop avoiding taxes. Both of these contradictory intentions are embodied in our current tax law. The spirit of the law is confused at best.
I grant you that it might not be possible in all the cases. But it'd be hard to argue that the double-Dutch sandwich was something any politician ever intended.
The pedantry you're referring to is also sometimes called "rule of law", and it's more beneficial than the expediency of witch trials. I avoid taxes as much as possible, though I admittedly lack the team of lawyers, and everyone who puts money in retirement accounts is also just avoiding taxes.
I hate Walmart for their ruinous development patterns, but I don't fault them for working within the system they're given. Don't hate the player, hate the game.
>And with another quirk - this time in US tax laws - the do not even have to pay taxed in the US on those earnings, as they have not repatriated the funds.
This is not a 'quirk' as you think. No country in the world, other than the US, tax their corporations on already taxed profits in a different jurisdiction. This actually ends up hurting the US because corporations cannot repatriate already-taxed funds without being taxed again.
The US tax code is a huge mess, agreed. But you gotta pay your dues (aka taxes) somewhere, and here Apple et al goes essentially Scot free. That is not cool.
Every time this apple in Ireland tax issue comes up it makes my brain hurt, literally hurt to read all these replies who don't seem to look at this problem correctly.
First, Apple did nothing illegal. There is no wrong doing here. They pay tax in every country they owe tax. Period.
Second, perhaps it's not Apple that's the problem? Perhaps it's the tax that is the problem.
If you have mega corps building entities outside its main jurisdiction to avoid the main jurisdictions tax burden, perhaps you need to revamp your insane tax code. Hmm?
No, if you have mega corporations build entities outside your tax code, you have a case of countries having designed very attractive tax codes for corporations. Small countries especially have an incentive to do so, as a smaller percentage of tax of a larger percentage of capital going through their country counts for a lot per capita.
As companies benefit from this incentive, they lobby to keep it around. Very successfully.
So no, revamping the US tax code is (quite obviously) not an answer to Apple not paying tax in the EU. Having enforced taxation rules that prevent the race to the bottom is. Unfortunately taxation is not in the remit of the EU at the moment. Hence the back door approach through "unfair tax benefits".
We don't need trade deals that harmonize things so countries can, we really need tax deals that harmonize, or at least put minimum standards on taxes.
Why wouldn't something like that fly? Well because if the impression European observers have gotten over the last years is correct, then Apple et.al. basically own US policy on that point, to such a degree that the US actually threatened the Commission against ruling as it did.
So no, Apple did nothing illegal, but what is happening is clearly wrong, and Apple is lobbying to keep it that way. Heavily and successfully. And that is wrong.
For an example of an ethical stance a corporation could take here: IBM was, at least for a while, lobbying for abolishing software patents while at the same time owning a massive amount of them and registering new ones.
A structural fix would be to work towards making the US (and the EU, and all other) political system more resilient to lobbying pressure from powerful corporations.
But that is about as hard a problem as you are likely to find.
This is the point where Godwin's law comes into effect.
Seriously though, it was legal to own slaves in the US not all that long ago, most people now a days wouldn't say "There is no wrong doing here", just because it was legal.
The only relationship between slavery and corporate profit tax is that both should be abolished.
There are hundreds of different ways to tax. Taxing corporate profit is controversial because it's very hard to determine what exactly constitutes profit and for multinational firms like Apple deciding in what jurisdiction profit occurs is highly arbitrary (your iPhone has parts from half a dozen countries). The most logical conclusion is to simply get rid of corporate tax and make up the shortfall by increasing other taxes. Several countries already do this, countries like the US that stubbornly persist in trying to levy such arbitrary taxes will simply chase away international business.
I agree with you to an extent, but I've often heard the argument that in that case wealthy individuals would just place all of their finances in a corporation and never have to pay any taxes whatsoever. How would you address this?
This one is easy and points out another problem: The ability of businesses to write off expenses.
The cost of goods inside airports would be significantly lower if business travelers couldn't just expense everything they buy. As long as it's max 1/3rd of the usual food allowance businesses can charge that amount and be assured that business travelers will pay.
If you take away corporate taxes then "expensing" will go away entirely. Along with all those receipts you have to save and the entire industries and businesses that profit from it (e.g. fake receipt producers, Concur, etc).
Wealthy individuals wouldn't be able to expense their purchases through subsidiary corporations anymore which would necessitate collection via sales tax. If you think that's an awful lot like the Fair Tax system you're not far off.
I'm actually not an advocate of the Fair Tax or even a Federal-level sales tax because it would be very regressive: Vastly unfair to the bottom 50% of society. Having said that, if you abolish corporate taxes it's one of the only ways to obtain tax revenue.
Storing money inside a corporation is actually something that happens a lot already. I'm not sure that's a problem, because eventually the money has got to come out of the corporation if you want to do anything useful with it, and it will be taxable then. There are countries that have a flat yearly tax on capital, which would be one way of getting at it, but anything you do would make money flee the country. In my opinion it's more fair, and easier, to tax a flow (labour, sales, pollution) instead of a stock (bank account).
Or when the corporation buys a luxury car and the CEO leases it to himself for $1/year (this is a very common tax avoidance tactic, as the car is for "an employee" they call that lamborghini murcielago a business expense). There are too many loopholes to fix in my opinion. Why tax earnings as opposed to assets anyway?
So what you are saying is that we should let poor people pay more taxes instead?
Because that is what abolishing corporate profit tax comes down to. The only substantial tax most states have are consumer taxes, and we all know that these taxes disproportionately hurt people that are already poor.
This is like saying the float on currencies should be abolished, which effectively is already done by Euro countries within the EU. They can't each set their own monetary policy independent from the EU, but they have sufficiently different economies if it weren't for having one currency, they'd have float to make up for their differences. So now the EU is trying to take away yet another mechanism by which countries are trying to get some aspects of currency float back. I think if this decision stands, it will put more pressure on the EU. And I don't think that pressure is likely to be relaxed by countries giving the EU more centralized control over monetary policy - most EU countries just aren't up for that.
Ha, well if something sounds too good to be true, it probably is. Whether Apple did something illegal isn't really what people are bringing up, but whether Ireland and Apple agreed to a loophole no one at the EU level actually intended. It'd sorta be like Apple getting out of paying U.S. federal tax because of a California loophole that disproportionately applies to Apple.
I don't see the EU giving Microsoft grief. It'd seem they're paying EU taxes differently than Apple.
No, they don't go scot free. If and when they repatriate the money, they will pay the tax. Just because they have chosen not to do that yet, doesn't change anything about the liability.
Just like individual income tax for expats corporations only pay the difference between their foreign tax liability when moving funds to their US-based sister or parent companies, last I checked.
I posted this in the other thread on the subject but it's worth repeating here: Apple does not actually have any subsidiaries in the British Virgin Islands (or any other Caribbean island), and (despite common belief) it has not actually moved its intellectual property offshore.
Apple's international tax structure was thoroughly documented when they were called up to testify before the Senate, which you can read about in the Senate Subcommittee Memo on Offshore Profit Shifting and Apple[1], and while they do have several Irish subsidiaries, they do not have any subsidiaries in the Caribbean or move any money into the Caribbean.
This is further reinforced in Apple's testimony before the Senate[2]:
> Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands. Apple has substantial foreign cash because it sells the majority of its products outside the US. International operations accounted for 61% of Apple’s revenue last year and two-thirds of its revenue last quarter. These foreign earnings are taxed in the jurisdiction where they are earned (“foreign, post-tax income”).
Yes, you are right, Apple does not use the Caribbean tax shell company shenanigans most other tech giants using the double Irish do. But why bother, when Ireland gives you the sweetheart deal even BETTER than what the Caribbean tax cheats have on offer...
So replace my BVI sub with that "fairy tale green island of tax cheat's dreams... "
They have a specially negotiated rate with Ireland. (The crux of this issue is whether Ireland granting them a special rate was legal under EU law.)
Edit: Actually, "special rate" is a bit misleading, as it implies Apple went to Ireland and said "hey, we'd only like to pay .05% instead of 12.5%" and Ireland said okay. The way it actually works (as described in the previously mentioned Senate memo) is that ASI (the Irish subsidiary) buys an iPhone from its manufacturer in China at cost for $200, marks it up to $600, and then sells the iPhone to Apple Italy for $600. Apple Italy sells the iPhone to a customer for $600 and recognizes $0 in profit, while ASI records $400 in profit. But ASI claims to not be a tax resident of Ireland and therefore when it buys an iPhone from China and sells it to Italy, that transaction shouldn't be subject to Irish taxes since no economic activity actually occurred in Ireland.
Therefore, the only taxes that ASI pays Ireland are from transactions where they actually sold products in Ireland itself. In 2011 ASI recognized profits of $22 billion, of which $50 million occurred in Ireland, and so they only paid ~$10 million in Irish taxes on that $50 million, leading to an effective tax rate of .05%.
Thanks for the example. It clarifies things. I can see how the EC claimed that Ireland was giving Apple 'state aid' although it looks like any company doing this would also be subject to a ruling like this.
While this sandwich structure is in principle highly problematic it is legal.
Reading the complaint there is a lot in it about valuation of the intra-company transfers and arms length principle in establishing valuation numbers. I suspect it is there where Ireland and Apple colluded to enable Apple to avoid paying taxed in other EU states. Apple may be saying it is legal but they must know that the deal they got from the Irish Government was too good to be true.
While the volume was small it did not raise alarm bells but the volume Apple is doing it eventually pushed the envelope too far.
Just regulated the transfer of IP rights. If you sell say a patent portfolio for $50m to your British Virgin Island subsidiary, and then make $20bn in profits in the decade thereafter on that BVI sub, it appears the IP transfer was waaaaay below market value. And should retroactively be taxed in the US where we engineers had developed that stuff in the first place.
Problem solved. US tax base restored. Government deficit fixed.
Let's imagine an honest tech company that buys a 100 patents each year for 10 years.
As usual : 90% of them and up being useless. 9.9% of them allow to make a good product that sell well and keeps them afloat. And one of those ends up being ground breaking pushing the company forward, allowing major innovation in their product line.
In the current situation, the company placed a bet on those patents. They took risks, every year, for 10 years. And ended up being rewarded for it after some struggle and a lot of research.
In your proposed situation, the company would put as much risk in buying the patents. Would still struggle for 10 years. Then, once the ground breaking product comes along and starts generating sales, authorities come in and ask for retroactive taxation because their crown jewel was "clearly under market value"
That honest company would probably not stay in business for very long. Or would not even exist if the founders knew that would be the outcome.
You got this wrong. My point is to not allow to sell IP from the US Inc to the British Virgin Island subsidiary Ltd for a handful of dollars, and deprive the US taxman of billions of earnings. That "ground breaking product" was developed in the US, thus the profits and taxes should be made there.
I love US companies making boatloads of cash. I just hate them to get around paying normal taxes here.
If IP is really property, subject it to property tax. The valuation is of course an estimate, but if it were ever sold, there'd be a tax credit or debit, in arrears, without penalty but with sane interest. The only way to really get out of it is upon the expiration of the property's government granted monopoly status, i.e. turned over to the public.
What if you buy a derelict property (MySpace?) for a bargain at auction then make billions after you bring it back to prominence. Are you to saying you should be punished for your low acquisition cost?
I Believe this is not just yoit standard double Irish, there was an extra loophole that Eire closed in 2014 where the second company could be based in no country at all, not just a fiscal haven
Unless you're speaking Irish, please don't refer to the country as 'Eire' - it's akin to referring to Germany as 'Deutschland' in English. It's either 'Ireland' (the country's name in English) or 'Republic of Ireland' (its official description) if you're more comfortable with that.
But, but... Isn't the modern norm to use "native" names wherever possible? Calcutta/Kolkhata, Peking/Beijing and so on? As a token of respect towards actual indigenous cultures.
No. This predates that by decades. Also, our constitution clearly states the specific name of the country in English and Irish. This might seem like a small thing, but it' actually a very important issue to Irish people: https://en.wikipedia.org/wiki/Names_of_the_Irish_state
It's intended as quite the opposite of a token of respect: the purpose of referring to Ireland as 'Eire' (omitting the accent on the initial 'é' too) is to delegitimise the use of the term 'Ireland' to refer to the Irish state.
If actual Irish people wanted the state to be referred to as 'Éire' in English, it'd be one thing, but we don't. In English, it's name is 'Ireland', and in Irish, it's name is 'Éire'. There's also a diplomatic fudge in that there's an 'official description of the state', which is 'Republic of Ireland', which isn't its official name, but which is an acceptable substitute. And yet, incorrect terminology is still used to refer to the Irish state, such as 'Éire' (being used in English) or 'Irish Republic', and sometimes you find particularly ignorant types refer to it as 'Southern Ireland' (which was the name of a failed attempt at a counterpart to Northern Ireland within the UK, but which never gained any legitimacy) and 'The Freestate' (which carries the implication of British dominion over Ireland).
The norm is to use 'native' names where those people want those names to be used. Both Ireland and Éire are native names of Ireland, just in two different languages.
And that has long stuck in the craw of Irish people. It's seen as a way to subvert the legitimacy of the Irish state here in Ireland when the country is referred to as 'Eire'in English.
> Why the US would allow their truffle pigs to not pay taxes on oversea earnings is clearly the result of expert lobbying.
Are there any other countries that tax already taxed overseas earnings? If the sale was made in say China and taxes were paid in China, why does Apple need to pay US taxes?
(This is an honest question, I really don't understand this. I understand _that_ it's US law, I don't understand why)
In their ruling, the commision implies that other countries may seek to judge this independently based on their findings. This can still turn into a much larger tax bill than the nominal value in the commission's findings. :)
Ah yes, because laws are totally independent of morals. I'm clearly being facetious. Laws are the manifestation of morals, either collective or of highly influential individuals.
But, to your point, laws are the non-arbitrary manifestation of those morals. Indeed there should be no unwritten standard as well. In this case, there wasn't: the Irish laws did not comply with EU law, and EU law take precedence in this matter. Apple should have known that was a possibility, and probably did know but hoped (and lobbied) for the best.
Morals are very relevant when deciding what's right and what's wrong. In this particular case, I fully support the European Commission. Note that there are laws against setting up artificial corporate structures with the sole purpose of circumventing taxes, and that's exactly what Apple did (with the help of the Irish tax bureau). The only problematic thing here is that Apple is being made an example of. There are many other companies that are doing the same. But it makes sense to handle the largest cases first.
I wish I could, unfortunately I have no power or money, while multinationals have armies of lobbyists and bags of money a la Scrooge McDuck to help write the laws to suit them.
Actually, it's not obvious at all. The parent is suggesting that the EU should not adhere tax law as written and should instead attempt to impose it's morality.
They do pay taxes. You are advocating that they should pay taxes that they don't owe because an EU bureaucrat wants to increase the power of the EU against the sovereignty of the individual states, in this case Ireland.
How is it morally wrong to pay fewer taxes than your neighbor? Apple's job is to enrich their shareholders. They have no second allegiance to country or continent. It's morally wrong for them to pay taxes into a bureaucratic system instead of investing in R&D, operations, and shareholder returns. Fair societies don't mean equal societies. Apple creates more, and better, jobs than the book store they shut down to open a showroom.
It is morally wrong to pay a lower tax rate than your neighbour. If Apple were investing their money into R&D, operations or higher pay checks no one would be complaining. But they're engaging in aggressive tax planning merely to hoard the cash.
> Apple creates more, and better, jobs than the book store they shut down to open a showroom.
It's not about Apple's showroom vs book store. Its about Apple's massive cash pile vs hospital services/fire brigade/police dept/infrastructure etc. Those are essential services, and jobs, too.
Because it means the ethical company that pays its taxes has to pay for a disproportionate share of the roads, parks, schools, etc... The unethical company gets a competitive advantage in ditching their obligations to the country like a deadbeat dad.
There is nothing in the world that makes me more mad than a bunch of bureaucrats, that have produced nothing for anyone, demanding resources from the employees of Apple, who are working to create products that consumers want in exchange for wealth. This is a direct assault on all employees of Apple and the work that they do with the understanding that they will be able to retire comfortably. Unbelievable greed on the behalf of a society that works fewer hours than any other.
The US government came out against this ruling, suggesting that US corporations are disproportionately targeted by the EC tax rulings.
>The commission has initiated investigations into tax rulings that Apple, Starbucks Corp., Amazon.com Inc. and Fiat Chrysler Automobiles NV. received in separate EU nations. U.S. Treasury Secretary Jacob J. Lew has written previously that the investigations appear “to be targeting U.S. companies disproportionately.”
>“There is a possibility that any repayments ordered by the Commission will be considered foreign income taxes that are creditable against U.S. taxes owed by the companies in the United States,” the paper said. “If so, the companies’ U.S. tax liability would be reduced dollar for dollar by these recoveries when their offshore earnings are repatriated or treated as repatriated as part of possible U.S. tax reform.”
That's fine - sounds like an incentive for companies to bring money back to the US.
The reduction in tax liability happens when the earnings are repatriated per this quote. If these companies are storing this cash overseas in a bid to avoid paying taxes on it with no intention of repatriation until a tax holiday then why should we care?
I would very much care if I were Apple and going to be taxed a second time trying to bring my money back to the USA. If that silly rule was eliminated much of all of this would be moot.
Every country in Europe has some sort of wacky tax exception for multinationals. Every state is locked in this race to the bottom with its neighbouring countries.
It's great that there is a supra-national authority forcing the states to cooperate on getting multinationals to pay reasonable taxes, because it wouldn't happen otherwise.
I'm not sure about that. I think most multinationals follow the same double-irish structure [0] which is based on laws in Ireland, the Netherland and the Bermudas.
According to Wikipedia (just listing the IT-companies):
People here are commenting on Ireland (and other jurisdictions) engaging in tax arbitrage to attract companies and jobs.
Competing on tax rates and negotiating tax deals were a huge MNC like Apple pays a ridiculous 0.005% is bad: morally wrong, cuts to public services, increases unjustifiable economic inequality and is just not fair on other much smaller firms who have to pay full whack on the tax.
Apple, FBK, etc don't see it like that - they will engage in aggressive tax planning to minimise their tax, hoarding billions of dollars. And its not like they do anything productive with their cash pile; its not like it goes to higher pay checks for their Asian workers. Instead, its spent on share buybacks to prop up sagging share prices and keep Wall St happy.
Here's a better approach: tax companies on their profits and remove or reduce income tax and capital gains tax. This aligns incentives to:
1. encourage and reward founders to start new business
2. the most valuable employees tend to be mobile ones - a core EU principle is free movement so compete for the best employees by lowering taxes and giving them great public services. Companies will follow.
3. tax company profits and everyone is on the same level playing field: provides an incentive for companies to reinvest their profits into growth (and indirectly jobs).
Companies are already taxed on their profits. The hard question is determining what is a profit and where it is located.
And share buybacks are returning capital to the owners of the business, which is why they invested in it in the first place. The owners can then make their own choices about how to allocate capital productively.
We are having this debate because in practice some are taxed at 20% and others practically nil.
I'm arguing for no negotiated tax arrangements, indeed I have been giving thought to a progressive tax regime for companies. That would be interesting to evaluate.
> And share buybacks are returning capital to the owners of the business
Which is why I am not sure buy backs should be taxed. Either a company invests its earnings, or else it returns them to shareholders who can decide to identify growth opportunities, as you suggest.
Companies like Apple achieved a tax rate of almost zero by exploiting the definition of "profits" to argue that they didn't earn more than a trivial amount of profits in any of the countries they operated in. The definition is the problem here.
Apologies, writing "tax company profits" may come across as some new tax. Its indeed corporation tax. My point was that we should not only keep it, we should apply it without giving exemptions to any individual companies.
Without these arrangements it could be (convincingly) argued that Ireland would be down 5000 jobs. (and iirc an estimated 18000 jobs created indirectly)
I think I'd rather see lower unemployment than higher corporation tax take if that was the choice.
I wonder how much Irelands payroll taxes would have been were the corporations not to have set up shop in Ireland, they would have just gone somewhere with a decent tax arrangement.
Unemployment in the 70's and 80's was brutal in Ireland, personally, I think the government at the time made the right choice, however, this "selective treatment" allowed Apple to pay tax rate of 1% on European Union profits in 2003 down to 0.005% in 2014, FFS.
> I wonder how much Irelands payroll taxes would have been were the corporations not to have set up shop in Ireland, they would have just gone somewhere with a decent tax arrangement.
A better question is where the world would be if nation states wouldn't allow multinational companies to pay only negligible taxes by taking part in a race to the bottom.
With tax deals like this one you're just ripping other countries off.
You mean countries competing for business? Why is that bad?
It would sound ridiculous if you applied it to companies "Car companies offering lower and lower prices is just a race to the bottom! If this keeps up we'll have no car companies as they'll all be bankrupt!".
Also your comparison is pretty bad. The direct cost per unit is pretty high for a car in a car company, the one for a company in a country is negligible. So it's more like a publisher selling digital goods, except that there's no copyright, preventing the others from selling exactly the same for a lower price.
Countries provide a service (infrastructure, social programs, court system) based on a price (taxes). There is a floor for those costs. There is a minimal amount of tax required to provide those services.
I think it's a bad idea to tell a country that they can't charge a lower price (taxes) in order to sell more business (have companies move there).
You could have a lower tax rate and make it up with volume, but you can't go below a certain tax revenue and still keep a level of infrastructure or social programs.
Overall I'm happy that gov'ts have to compete for companies. It's a great way to force them to be more efficient. If they never have to worry about their spending, why would they ever control it?
If this is about efficiency can you explain me then how Ireland is more than 1000 times more efficient than other countries (0.005% effective tax rate in Ireland for Apple, pretty much everywhere you pay more than 5% in corporate taxes)?
My point is that competition only leads to lower taxes and worse governmental service by the countries on a global scale (though single countries can benefit on the cost of other countries).
Even without competition Governments have the drive to keep taxes as low as possible to boost the economy and keep local businessmen happy.
Even better question is, where the world would be if evolution wouldn't allow individual organisms to optimize their fitness by taking part in a race to the bottom?
That constant pressure to do more with less... deadly.
With "beneficial" (sic) mutations like this one you're just ripping other organisms off.
The race to the bottom doesn't optimize fitness though. It relies on being globally unsustainable and just works by parasitically draining all business from the rest of the world.
Ireland isn't somehow magically fitter than other countries and thus able to offer 0.005% corporate tax. It's only relying on attracting an above-normal amount of companies by having low taxes and draining other countries of their tax benefits in the same turn. It wouldn't work if everybody was doing it. In fact countries would just turn to shit.
You can't begrudge Ireland for trying to get ahead when things were really bad. However, they've long reached a point where tax dumping is not morally justifiable. They were repeatedly told to sort it out, and got off the hook a bit only because of 2008. Now they're back on their feet, it's time to come clean.
I'm not sure that they Ireland is back on its feet.
Unemployment is still high in certain areas. The bank bailout crippled the country, forced really high taxes on those who really shouldn't have been held accountable (low income earners).
That said, Apple (and many other mult-nationals) seized an opportunity and ran with it. The moral responsibility to pay taxes should be on the CEO and the board.
It seems a lot of people think this ruling has something to do with 1) the "double irish" which is doees not or 2) Irelands 12.5% corporate tax, which it doesnt either.
The ruling, as far as the EU are concerned, is that Ireland gave Apple a deal more beneficial than anyone else. But the basis for this claim is how the tax was charged. Instead of charging Irish tax for all income for the company, they charged what was reported in Ireland. The issue that needs to be resolved is did they pay tax anywhere else on the remaining profits. The US said they did but the EU say they dont think so.
All of that will go back to Ireland's national debt repayments under EU rules from what I understand, which includes large repayments due to the EU for the recent loans provided to Ireland for propping up banks, so really EU is collecting this money by proxy of Ireland. Interesting play.
I only wish that countries would compete for people the same way they compete for businesses. If they were to provide the best services, quality of life, in exchange for the lowest income taxes. That way people would move there and companies would follow. Wishful thinking?
They do. Why do you think New York City and London get to tax at the rates they do?
Taxes (at least personal taxes) are a user fee. Every time an employee snuffs at an offer in Missouri or Bangladesh, they are implicitly signalling a preference for quality-of-life elements.
You don't have an email in your profile, but I'd like to get in touch with you. Would you mind letting me know the best way to do so? My email is in my profile.
While I am in favour of such a scheme in principle, it would mean that 95% of Africa and large parts of Asia would move to Europe, which would cause big problems.
Thankfully decision makers don't (all) think like you. Equating countries to businesses ignores such a vast amount of the reality of the real world that it isn't even funny.
It's always the Achiles' Heel of the One Simple Trick that laissez-faire capitalists continually propose: that the world is more messy and complicated than: make countries = businesses.
I don't see how that would work (at least in Europe). Companies know now that the EC is going to come after them eventually unless they have their head buried in the sand and didn't hear today's news.
Imagine you had an agreement with your local tax authority that they agree for you to pay X in taxes. Then few years later tell you that actually, they were wrong and you have to pay more - you would fight this for as long as possible, wouldn't you?
You can try, you'll probably lose. When the figure is so low it should be blatantly obvious it is wrong you won't get far arguing that you did what you were told and didn't realise something was wrong. When you pay 0.005% tax over a year when the corporate tax rate in the country is 12.5% who can you argue you thought you were paying what you were required? They will try of course and I think Ireland and Apple have both said they will appeal to the European Court but I don't think they'll get very far.
Heavy discounts are usually given for this kind of issues by fiscal authorities, unless there is proof (beyond doubt) there was unlawful intent to not pay those taxes.
We should cut corporate income taxes to 0%, and increase income taxes on investors and highly-paid employees to make the change revenue neutral. This will eliminate the incentive to waste resources on corporate tax avoidance and allow businesses to focus on creating customer value.
Companies try to pay the taxes by the "legal minimum" principle: pay what is required, but not more. If you have 2 parking slots in the downtown next to each other and one of them is cheaper, you will park where is cheaper... Why pay more if not required?
Question is: Did politicians, who created such laws, received bribes?
> The amount of unpaid taxes to be recovered by the Irish authorities would also be reduced if the US authorities were to require Apple to pay larger amounts of money to their US parent company for this period to finance research and development efforts.
I wonder how much of the 14B could be offset by this? I suppose there's a chance that it all might be.
"...The findings are a result of the culmination of a three-year investigation by Competition Commissioner Margrethe Vestager into tax arrangements for Apple, dating back 25 years..."
I have no love in my heart for Apple.
At the same time, it's not like they don't have enough lawyers. So I have to assume that anything involving billions of dollars would be strenuously vetted. I might be wrong, but I'm starting from there.
And if they were supposed to pay taxes, they were supposed to pay them. Purposefully evading taxes is wrong. Avoiding taxes is another matter. Complex tax codes to change society work because we assume that people will be actively avoiding them. So good for them. They're playing the carrot and stick game that governments like us all to play.
If true, this means that they did the right thing that the best-informed legal minds could offer in order to legally avoid taxes. It worked for a while then suddenly the rules changed. And they changed not just for the future, but retroactively.
What occurred to cause a rules change? It wasn't the law. It wasn't Apple's behavior. It became a story in the U.S. about how companies are getting away without paying their "fair share". The EC was the one that acted, and the only thing that makes sense to me is that the EC saw an opportunity and appointed a commission. Not arbitration, not a criminal or civil trial. A commission.
Quite frankly, this looks like a stick-up. Apple's a big company and can take care of itself. I really hope that the same kind of thing doesn't happen to mid-sized and smaller companies trying to eek it out in the EU. It's not just bad for the companies involved: it's bad for the reputation of the union as a whole. You can't keep changing the rules up if you're trying to tweak regulatory issues to promote long-term growth. Nobody with any sense is going to trust you.
I'm not convinced that even if Apple have the money and probably employ some of the best tax lawyers around. That they always go for the solution that is unambiguous above board and guaranteed to follow the law.
This might be one of the times they went for something that looked good and they thought they could get away with, but that didn't pan out in the end.
Close. They did something that WAS good and perfectly legal. It was a perfectly valid agreement between consenting adults. Then other countries got jealous and intervened. These are the types of attitudes that are fueling the current separatist movement.
Beats me. We might have to wait 20-30 years for somebody's memoirs to be written to finally hear the rest of it. With this much at stake I seriously doubt there will be a simple narrative.
What I am sure of is that anytime the company with the biggest market cap takes a hit like this? Ten thousand other companies are paying very close attention. Even if Apple took a gamble and lost, other folks have to ask themselves when it comes to regulatory issues in the EU, what kinds of gambles they are taking without even knowing it.
Of course, I simplified the story to make my general point. In the version with more details, Ireland even had their own investigation and worked everything out with Apple. But the EC decided that wasn't good enough.
It's really quite breathtaking. They had to pay 11 years of taxes. How many companies would be able to do that?
Can someone clarify where this money will eventually end up (assuming it's paid)?
The article says that it will be paid back to Ireland, yet it looks like Ireland was somewhat complicit in allowing this fraud to continue for so long?
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Is this just how it works, money goes to Ireland, and then recovered by Europe?
The money paid will go to Ireland. Ireland allowed Apple to structure its tax affairs in a way that reduced their tax bill which is a great incentive to maintain a presence there.
The EU has now determined this was an illegal tax benefit provided by Ireland, so Ireland must now collect the tax as if it had done so at the time. There is no penalty but interest must be paid.
This is not your normal run of the mill tax avoidance case (or a fraud as you've mentioned) although it appears to look the same. This was Apple benefiting from decisions taken by Ireland that Ireland should not have made.
What I don't fully understand is why Apple is fined instead of Ireland.
Edit: Maybe "fined" is not the correct term for this, but my understanding is that Ireland had granted Apple tax benefits which they shouldn't have granted. Isn't Ireland in the wrong here, rather than Apple?
No fine for Apple. Apple can almost look entirely innocent on this, they asked Ireland to look at how they've structured their tax affairs knowing full well what impact this would have on their tax bill. However Ireland agreed to it, even though it shouldn't have.
The EU has now stepped in and clarified that Ireland should not have allowed this in the first place.
Shouldn't Ireland also take the blame here? If not, this sets a dangerous precedent for future governments who can sek companies to set shop but then back out once courts rule against. I mean, Ireland here comes out with no culpability.
Yes, the way I imagine most people will take this story is that Apple avoided taxes but really Ireland allowed them to contrive a tax structure that resulted in a lower tax bill. Apple must have known this would happen some day, I'd imagine they would have taken advice on it at the time and someone somewhere calculated that even if this happened, it was still worthwhile. So Apple isn't completely innocent but it's really Ireland at fault here.
There is no direct impact for Ireland e.g. a fine but it will create uncertainty for others already operating in Ireland and those considering investment. This uncertainty can be very bad for Ireland for years to come, so there will almost certainly be a penalty, albeit an indirect one.
Not quite. It's possible they'll feel the effect of the 1,000+ overseas companies with a presence in Ireland reassessing the pros and cons for their being there.
WHAT the punishment would be could be a matter of discussion. My point was there SHOULD be some punishment. I can't imagine a case where Ireland walks out of this unscathed.
To the European Union, I would think. Other European countries which are abiding to the rules are losing companies to those who countries offer unfair tax benefits.
The article literally says that EC told IRELAND to recover the due tax from apple. Apple is not being fined - Ireland is being told to sort out their tax system - it just happens that if they do, Apple will have to pay a lot of tax.
Imagine your country offers a tax refund for installing solar panels. Because of this, you decide to buy and install solar panels. Lateron, it is decided that your country shouldn't have offered this refund for this or that reason.
Would you feel that it is fair that you have to pay up, instead of the institution that wrongfully offered you tax refunds?
1) Apple would have sold their stuff in Europe whether they had to pay full taxes or not, they only wanted a discount. I would probably not pay for the solar panels because I can't afford them.
2) Solar panels are very expensive and would make a huge dent in my balance. That's not the case for Apple.
AIUI the money is owed to Ireland but Ireland originally refused it, EC is now saying "no, really, you have to take it". Might be followed up by Ireland getting into trouble if they unfairly benefited from the deal?
That said, I think Ireland owes the ECB money too, so they'll probably use that money to repay their debt?
If they have to take it (after the expected appeals by both Apple and Ireland) they will not be able to use it in the national budget. It will be used to draw down on the national debt, so ya could very well end up going back to the EC or more accurately the EC.
So, if I understand correctly, EC's argument hinges on the idea that Ireland gave "special favors" to Apple in terms of the tax deal. In particular, that Ireland offered things which nearly all other companies were not. If that is not the case (IE, if it can be proved apple received no special treatment), then the conclusions of the case, and the penalty, are false.
Why this blatant falsification of facts? In 2014, Apple's earnings before interest and taxes was $53,483,000 and the income tax expense was $13,973,000. That's 26.12% effective tax rate. All data from Yahoo! Finance: https://finance.yahoo.com/quote/AAPL/financials?p=AAPL. It's a similar tax rate in other years too.
Did you read the article? The numbers I wrote are straight from the European Commission.
As a European Union citizen I trust EC's findings more than yahoo.
Also, do you really think that Apple made only 50 million in Europe in 2014? What is it? A startup?
It seems silly to price in thousands when you're talking about billions. Either go all the way and show billions, or show dollars. Don't try to do some halfassed compromise.
The numbers Yahoo Finance provides are in thousands, so that's $53.4bn in Earnings Before Interest and Taxes and $13.9bn in Income Tax Expense.
Regardless, that's their global financial accounting. It doesn't detail out the EU revenue/taxes in particular. The article linked discusses that specifically. That's where the 0.005% number comes from.
I wonder how much of that is due to tax avoidance, whether legal or "unexpectedly illegal" (as in Apple's case).
If governments around the world follow the lead of the EC, I would expect a noticeable decline in corporate profitability over the next five to 10 years.
Note: I just generated the plot above as a png at the St. Louis Fed's FRED website, and I don't know how long the image will remain available. To recreate it, plot the "Corporate Profits, Adjusted" series divided by the "Gross Domestic Product" series, using the same units for both series (e.g., nominal billions).
Q: What do you say in response to Nobel economist Joseph Stiglitz’s comments on Bloomberg [television], where he called Apple’s profit reporting in Ireland a “fraud”?
Tim Cooks answer: I didn’t hear it. But if anybody said that, they don’t know what they’re talking about. [...]
Yes, it is Apple's problem and no, Apple is not a victim in this thing.
The EU treaty is Irish law as well and lawyers from all over the union (myself included) have been looking on at this blatant violation of EU rules for years wondering how long multinational companies would be able to keep the schemes alive.
The Irish people have voted for politicians who adopted the EU treaty which bans subsidies to large corporations. The Irish people benefits when subsidies to French, British or German corporations are curbed. Under EU law, Apple has been obliged to pay ordinary Irish taxes all along. The whole arrangement has clearly been illegal and it is hardly a surprise to Apple and its army of lawyers and accountants that sooner or later justice would catch up.
Competitors that cannot secure such individual tax agreements are hurt by this. I sincerely hope that other multinationals with similar schemes will be next.
Apple will likely bring this ruling before the European Court of Justice but it is very unlikely that they will succeed in changing the outcome. From a legal point of view this is a very simple matter and it is an embarrassment to the whole EU system that it took so long to do something about it and that other multinationals still enjoy tax subsidies in Ireland (and likely elsewhere in the union).
The issue is not that Apple did not pay tax, nor is it Ireland giving Apple a good deal. Ireland charged tax based on reported earnings in Ireland, not world wide, for a child company of Apple that says it is based in Ireland but has revenue income from around the world.
The EU has decided that all revenue income for that company should be charged in Ireland, although the US say they have also paid tax in the US.
Fundamentally Ireland is saying it did not give a "deal", the EU is saying it calculated the tax incorrectly and the US is saying that the EU's findings are based on no tax being paid elsewhere which was not the case.
As was also pointed oout, Ireland seems to be the scape-goat for all EU decisions. The Irish bail out has already been mentioned in this thread, but for those who are unaware of what happened here is a simple break down.
German companies bought binds in banks (like shares). When the banks started to fail, Germany told Ireland that the tax payer had to pay the bond holders all the investment money and the interest. However if the tax payer had purchased these bonds, they would have never received anything back. They also told Ireland that if they tried to burn the bond holders they would incur trade embargo's to stop Ireland trading in the common market (Ireland makes a loot of money from exports to Europe). So basically it was pay the bond holders or you will have no income.
Ireland is hardly a scape-goat. The commission has dealt in a similar manner with Amazon in Luxembourg, Starbucks in the Netherlands, and Anheuser-Busch InBev in Belgium.
Whether or not there is an agreement between Apple and Ireland or just an understanding that Ireland would not tax them on almost any income is irrelevant. The point of the matter is that the effect of the scheme has been that Apple has paid next to nothing in tax on all European profits in more than a decade, spanning from the sale of your first iPod to your newest iPhone. That income has been channeled through the Irish companies and Ireland has not taxed it with it's usual corporate tax (which, by the way is now merely 12.5 percent). It is appalling.
Sure, there was some news that EC has dealt with Amazon, Starbucks, InBev but did they actually pay anything back? Did they appeal? Last I heard for InBev the Belgian Finance minister said: "the consequences for the companies concerned would be considerable and the reimbursement itself would be particularly complex" aka will take forever and we will probably not really do it.
It has taken a number of years for the investigation of Apple to reach this point, and the investigations of Starbucks, Amazon, and InBev are ongoing. I don't believe your "aka" summary is accurate.
The investigation for those three companies mentioned is complete and they have to pay the taxes. Now if they finally will do after years of appeals that's a different question. That was my "aka" summary.
> Ireland makes a loot of money from exports to Europe
That's the crux of the overall matter, from a political point of view. Ireland benefits from the European market disproportionately more than the EU benefits from Ireland. This is why Ireland ends up being "a scapegoat" - because nobody is particularly happy about their status as the onshore tax-haven of choice for healthy US multinationals, so every time they end in a pickle, they have very few friends (and with Brexit, they effectively lost their biggest one).
>The Irish people benefits when subsidies to French, British or German corporations are curbed.
Are you serious? Subsidies to German and French corporations were not curbed they were replaced by the ludicrous loans that the Germans and the French give out to the "poorer" and "less industrious" EU member states so they in term can go around and buy German goodies.
And when this Ponzi scheme blows up because of a financial crisis they force you to take on even more loans to pay back the debt you own all while preventing you from writing off debt or going bankrupt with threats of shutting off your banks because you do not control your own currency.
They forced Ireland to 'take one for the team' and prevent contagion by repaying bad commercial bank loans from overseas banks to the failed Irish banks. In other words they prevented Ireland from doing an Iceland.
They hinted that new, shared burden, measures, to be put in place, to cover such eventualities in the future, would be applied retrospectively to Ireland but they weren't.
During the bailout term the EU/ECB adopted a far harder stance against the country than the IMF advocated.
And doubtless on the back of this case there will be a legal action in Europe and a resulting large fine on Ireland.
You just don't get the feeling that this sort of treatment would be given to Germany or France.
Yeah it wasn't pretty.
Ireland was not allowed to default on its loans which was what they should have done.
It did not control its currency or banks which are effectively controlled by the ECB.
It could not repay some or all of its loans with its own currency by simply printing more of it and the only way of getting more currency was taking on more loans.
What people also don't understand is that the laws preventing incentives aren't protecting the weak they are protecting the strong.
Germany can set its corporate tax rate at 40-50% and while people would bitch and moan it would do nothing.
It's a huge market, it has a huge and highly developed workforce and it's one of the most industrialized nations on the planet with a highly developed and diverse industry.
It doesn't need incentives to lure corporations to set up shop and it doesn't need incentives to grow its own indigenous corporations and businesses.
If everything would be equal as far as cost of setting shop, employment and taxation between Germany and Ireland.
Neither Apple not anyone else would give 2 cents about Ireland when they have countries like Germany available to them.
Many of these laws aren't protecting the smaller nations they are restricting them and preventing them from being competitive forcing them to be effectively dependent on the bigger nations for loans/credit which they give out to allow their industry to keep producing in excess.
Anyone who thinks that Germany loaning money to Ireland so they can go around and buy Volkswagen and BMWs isn't a subsidy are blind or clueless.
> the laws preventing incentives aren't protecting the weak they are protecting the strong.
That's not entirely correct. These norms were introduced to open up nationalised markets like telecoms, mail etc, which would otherwise remain forever locked on national boundaries. This allowed an equal field for businesses across the Union. Of course, established markets tend to favor the richest players.
This approach is supposed to be complemented by infrastructural funds, where German and French taxpayers effectively pick up the bill for rebuilding Ireland or Romania to a state where they can compete on an equal foot.
> Neither Apple not anyone else would give 2 cents about Ireland
That's very unfair to Ireland. Ireland has a natural advantage nobody can take away: sharing a language with the richest and most powerful nation on the planet. That's worth a lot, in this day and age.
>That's not entirely correct. These norms were introduced to open up nationalised markets like telecoms, mail etc, which would otherwise remain forever locked on national boundaries. This allowed an equal field for businesses across the Union. Of course, established markets tend to favor the richest players.
Well it sure helped Deutsche Telecom and PostNL(TNT), everyone else is mostly still locked within their own countries, setting up the same rules isn't allowing an equal field of opportunity where you are at a disadvantage out of the gate and you can't adjust the rules you want to play by you will always lose. Established markets tend to favor the richest players, but to compete against them you have to be able to set up a competitive advantage and that requires you to be able to set you own policies under the current EU law you can't set up policies which are "disadvantageous" to other member states which means you will constantly get run over there is simply no way of competing. There is a reason why we split boxing into weight categories going up against a 300 lbs gorilla as a featherweight won't end up well for you.
>This approach is supposed to be complemented by infrastructural funds, where German and French taxpayers effectively pick up the bill for rebuilding Ireland or Romania to a state where they can compete on an equal foot.
The German taxpayer isn't really picking up the bill (although the Irish taxpayer kinda does, since the ECB forced the Irish taxpayer to take on the debt of private bondholders and investment banks, this is pretty darn unprecedented. This would be analogous to if Capital One would go under and the Fed/USG would not bail it out, and would not allow it to declare bankruptcy and then they would go and force Virginia and it's residents alone to take on all of Capital One's debts as their own) and many of the policies that Germany leads are also causing these cycles.
Germany operates at a pretty big trade surplus, many if not all of the EU members are at a trade deficit with Germany to the German policy makers the policy of allocating loans and credit to countries that would not otherwise be able to afford german goods to keep the german people working is a no-brainer.
The problem is that it's effectively a pseudo ponzi scheme when it works it works extremely well (the US employed a similar policy with Europe to keep it's post WW2 level of production at high levels, the Marshall plan helped Europe a lot but it also helped the US even more) but like all of them when it starts to slow down it tends to break apart into a mess.
Now this wouldn't be bad if Ireland could set up it's own monetary policy, control it's own currency, restructure its debt but it couldn't and it wasn't allowed too.
Because of how the Euroblock/ECB is structured most of the normal debt relief tools that would be available to a "normal" country are not available to Ireland, the few that are are not under their own control.
You can't come to some one in debt and say - you aren't allowed to declare bankruptcy, you can't restructure your debt, you can't repay it in your own currency like every other nation, and you can't adjust the interest rates because the ECB controls the price stability within the Eurozone.
The overall problem with this isn't that the EU/Euroblock is bad is that they are trying to have the cake and eat it, they are intentionally structured as a non-Federated entity, they do not share the pain, this isn't the US.
And on the other hand they have a shared currency and a monetary policy that is dictated by an external body the ECB which to be fair no one really elects and the individual governments of the member states do not have any control over (if the head of the Fed goes to I don't know Alabama and says If you don't take loans from Cali I'm shutting your fed and all your banks and payment systems come monday morning Obama can fire him (or well her now since it's Janet Yellen), the Irish government can't do squat to the ECB and that's just what it did to them and Greece).
The EU/Euroblock will soon figure out that they'll have to go either to a fully or at least much more federated system with which they would share in each other's wealth and misery or step it down to the point of where individual countries get the power back to control their own monetary policy, inflation, interest rates and taxation at the same level as every other sovereign nation state does today.
>That's very unfair to Ireland. Ireland has a natural advantage nobody can take away: sharing a language with the richest and most powerful nation on the planet. That's worth a lot, in this day and age.
India... South Africa...
English is important but you overestimate it's worth by several orders of magnitude, if Ireland was as expensive as Germany to operate in, or even if it was almost as nearly as expensive as Germany tax wise Germany would be considerably better and cheaper to operate in, even if you have to bring a few 1000's Irish people to do tech support.
Before Ireland "whored itself out" India was and to some extent still is the call center and the remote dev shop of the world simply because it's cheap and people can learn English, you can't learn paying only 15% corporate tax and have incentives for every engineer you hire that bring that figure to 0 instead of 30%.
South Africa now is also doing the same thing, they are on GMT, speak English and now are a pretty lucrative alternative to Ireland, and this thing with Apple will only make it worse.
Dude, can I politely ask you to increase the amount of commas and periods you use? Otherwise you're really hard to follow :)
> everyone else is mostly still locked within their own countries
That's not really the case. In fact, in a lot of sectors purely-national players are now the exception, not the rule. You have Portuguese building companies winning UK contracts, and French companies outsourcing to Czech companies. All that wouldn't be possible if richer countries could just lock down their markets with state subsidies. In fact, the only market where this does not happen is agriculture, which is heavily regulated and planned at the EU level.
You keep reasoning on national terms, whereas the point of the EU is to overcome those terms.
> The German taxpayer isn't really picking up the bill
> Because of how the Euroblock/ECB is structured most of the normal debt relief tools that would be available to a "normal" country are not available to Ireland
Not just to Ireland, to anyone. Which is really the main problem with the Euro, to be honest. There are solutions, but they need a coordinated effort by Eurozone countries to overcome German diffidence towards potentially weakening the currency. This effort is slowly building, now that France and Italy have nothing left to lose.
> they are trying to have the cake and eat it
Well, it's what everyone wants, isn't it? :)
> they have a shared currency and a monetary policy that is dictated by an external body the ECB which to be fair no one really elects
FED heads are also not elected but rather nominated; and historically they are pretty independent as well. Politically, the ECB is under a similar amount of pressure; the Governing Board is nominated by the European Council, aka national governments, and include representatives from all countries; on top of that sits a restricted Executive team which traditionally includes at least one German, one French and one Italian, recognising the larger role of their economies.
> the Irish government can't do squat
The Irish government can apply political pressure much like the governor of Alabama; the difference is that, lacking an electoral lighting rod, nobody cares too much about Alabama here. If there were such a lighting rod (a powerful elected EU President with executive powers), countries would cry about loss of sovereignty. EU economists are not the only ones wanting to eat cake, it appears :)
> The EU/Euroblock will soon figure out that they'll have to go either to a fully or at least much more federated system
Absolutely. Fiscal harmonisation is the next step on that path, and this decision is coherent with that endgame.
> India... South Africa...
Neither of those has unfettered access to the largest market on the planet. I should have probably qualified my previous statement with something like "in the EU".
> Germany would be considerably better and cheaper to operate in
You're selling Ireland short, here. Tax is one element of policy, but not the only one. I'm pretty sure US companies would rather work with Irish unions than German ones, for example. Germany is also another hour away in timezone terms, two hours in flight terms, and more uncomfortable to access by sea. And of course, everyone suffers from competition from up-and-coming countries in the same way.
Whatever the nominal point of the EU, the reality is that it massively benefits Germany, France and (formerly) the UK at the expense of the periphery - especially the southern periphery.
The Euro has been an absolute disaster for the PIGS - precisely because it has legitimised nationalist economic policies within a nominally (but disingenuously) open trade zone.
That's bad enough on its own, but the German and French right wing are immensely fond of couching this as a moral failure on the part of the feckless, lazy southerners who don't work hard enough to pay their bills.
That's criminally offensive to the economic reality, which is that the Euro has mostly become an excuse for loan sharking and economic exploitation.
Tax policy is a confused footnote. Juncker, who is so very very ashamed of Ireland, was in charge of putting in place very similar sweetheart deals in Luxembourg - a fact which he seems to be trying hard to deny.
>Dude, can I politely ask you to increase the amount of commas and periods you use? Otherwise you're really hard to follow :)
My english teacher flashback: Long sentence -3 pt.
>That's not really the case. In fact, in a lot of sectors purely-national players are now the exception, not the rule. You have Portuguese building companies winning UK contracts, and French companies outsourcing to Czech companies. All that wouldn't be possible if richer countries could just lock down their markets with state subsidies. In fact, the only market where this does not happen is agriculture, which is heavily regulated and planned at the EU level.
I think we were talking about slightly different things, you have more Chinese construction companies winning contracts in the UK than portuguese I was talking about the competitiveness of specific traditionally "national" companies in the grander EU scheme and this is set pretty darn poorly against the smaller countries, Ireland big problem is that it's small (<5M pop), It never had any real huge industry, it had a pretty bad conflict in Northern Ireland for decades and it's tied to the Euro.
Poland, Denmark, and the Eastern/Baltic states are really lucky that they held their currency.
>You keep reasoning on national terms, whereas the point of the EU is to overcome those terms.
Well problem is that it isn't the EU is explicitly "anti-federation" at least on paper, if the EU was structured like the US it would be a considerably more fairer place but the nation states within it are sticking to their national terms, borders, and sovereignty I only attempt represents the reality not an ideal some might hold.
I thought that we were talking about the Euro Debt crisis which went pretty bad as far as the Irish taxpayer goes and pretty good for the German one.
But if this is pan-EU economics then while Germany does pay more it also receives more.
2007-2013 Germany's net contribution was negative meaning it got more money than it paid out (same goes for all the other big contributors into the EU).
Yes, Germany and the rest of the large economies do pay out more, but they also get considerably more and while we can all find a few years in which they are paying considerably more than they are getting if you look at the overall figures it's more or less a zero sum game, and if you look at economic crisis periods it tends to be negative.
The smaller EU member states on the other hand have positive net contribution to the EU, they can't afford not to have that, they don't have the political capital for that and the EU laws and regulations are not set up in their favor.
>Not just to Ireland, to anyone. Which is really the main problem with the Euro, to be honest. There are solutions, but they need a coordinated effort by Eurozone countries to overcome German diffidence towards potentially weakening the currency. This effort is slowly building, now that France and Italy have nothing left to lose.
Aye this is a pretty big issue, Germany treats the Euro like it was the Dutchmark (I don't fault them for that ;)) as they are the "biggest" economy in the EU (by a substantial margin) and if we are talking old-school industry only that margin is probably even bigger they are very keen on keeping their production surplus and they are doing everything they can to make sure that still is the case.
Germany is at a pretty tough spot since they are the factory of Europe and their economy is still set up around its Industry (they are post WW2 50's America).
The services sector is nearly 80% of the economy of the next 2 largest economies in the EU - France and the UK, while their industry share is 20% or lower (UK 20.4%, France 18.3%).
Unlike the UK, France and even the US (20.8%) Germany's industry is 30% of its GDP it produces tangible goods at a high surplus, this means that much more of its GDP isn't not only tied to the purchasing powers of its trading partners but is also considerably less "flexible" than a services oriented economy and Germany would resist any major financial policy changes with very very fierce opposition.
Simply because it's easier and quicker to shift the focus of retail jobs or even retrain them than it is to figure out what to do now with an automotive factory and the 30,000 people it employed.
>Well, it's what everyone wants, isn't it? :)
The cake is a lie ;)
>FED heads are also not elected but rather nominated; and historically they are pretty independent as well. Politically, the ECB is under a similar amount of pressure; the Governing Board is nominated by the European Council, aka national governments, and include representatives from all countries; on top of that sits a restricted Executive team which traditionally includes at least one German, one French and one Italian, recognising the larger role of their economies.
Yes but any US state will have more political pull over the the Federal government or any of its institutions (even tho the Fed is technically a separate entity but the head of the Fed is appointed by the President) than nearly any EU member state has within the EU parliament, EC, and various other institutions.
If Janet Yellen would say to Alabama what the ECB said to Ireland or Greece, the Congress would be up in arms calling for impeachment and she would be without a job before sundown, it seems that while the EU is very paranoid about national sovereignty it doesn't really act to protect it(mainly because it's structured against it, the EUP is very "anti-national" for the most part and is also hardly representative of the actual elected governments of the various member states, and the EC and other institutions that their members are appointed by the governments of the member states have different responsibilities and agendas).
>Absolutely. Fiscal harmonisation is the next step on that path, and this decision is coherent with that endgame.
Fiscal harmonisation is a "big no-no" most EU states do not want federalization they want to keep their national identity and sovereignty at least in this point in time.
This decision isn't really coherent with this, it's strong arming without the reach around and with no cuddles.
>Neither of those has unfettered access to the largest market on the planet. I should have probably qualified my previous statement with something like "in the EU".
Nowhere was it stated that it was, but it doesn't makes English the reason why Ireland is preferable to Germany, if English was an issue they would import Irish to Germany if it wasn't more lucrative for them to set up shop in Ireland.
>You're selling Ireland short, here. Tax is one element of policy, but not the only one. I'm pretty sure US companies would rather work with Irish unions than German ones, for example. Germany is also another hour away in timezone terms, two hours in flight terms, and more uncomfortable to access by sea. And of course, everyone suffers from competition from up-and-coming countries in the same way.
Taxes are only one aspect of the incentives Apple and the likes received in Ireland and that's the problem, if Ireland was setup as a tax haven like Luxembourg the EU wouldn't give a damn, but it set up specific preferential policies that didn't make Apple want to setup a shell holding company in Ireland they made Apple want to put 30% of it's employees in Ireland.
And I'm not selling Ireland short, it's an island with 5M people with a tiny local market an underdeveloped industrial and services sectors with all the logistical issues of being an island including having higher consumer prices than Germany.
And I don't understand what does naval access have to do with this argument, Ireland didn't went after MERSC, ZIM, GE or Shell, it went after the likes of Apple, Facebook, Google and Microsoft.
But even then last time I've checked the largest port in Europe and one of the largest in the world is in Rotterdam which is pretty well connected to Germany.
>Poland, Denmark, and the Eastern/Baltic states are really lucky that they held their currency.
Poland will have to join the Euro or leave, eventually - that's what the treaties they signed force them to do. Considering their relationship with the UK, I think the "leave" option is pretty realistic at this point.
> the EU is explicitly "anti-federation" at least on paper
No, the EU is about "ever closer union". The maintenance of individual national identities is clearly a "necessary evil". The long-term objective is to have a permanent, harmonised union where countries can resolve their differences without ever resorting to war - in other words, a federation. Chances are that this federation will never be as culturally cohesive as the US are, that it will actually be smaller than it is today (possibly even smaller than the current Eurozone), and that it will be less centrally-manageable than the US... but it will be a federation regardless.
Otherwise we'd have kept the Common Market we had in the '80s, with all the instability that the multi-currency setup brought. For all its faults, the Euro kept inflation and borrowing rates extremely low and stable for almost 20 years now. The minute we manage to disentangle public-debt markets from nationalistic sensibilities, we are golden.
> Yes but any US state will have more political pull over the the Federal government or any of its institutions
No, I don't think so. States do suffer a lot even in the US setup. As I said, the difference is that at the top you have someone who cares deeply about electoral colleges, especially in marginal states. In the EU there is nothing of the sort, so all pressure has to come from coordinated alliances between member states in the Council.
> If Janet Yellen would say to Alabama what the ECB said to Ireland or Greece
California, one of the most powerful states in the US, has been on the verge of bankruptcy for several years now. The FED certainly won't alter their monetary policies to suit Californian public debt, it's totally out of the question. You don't see in the US what you see in EU because they don't even entertain the idea that California should have its own currency. The FED looks at the US economy as a whole and does what it needs to do to keep the overall system afloat; if that means Alabama gets screwed, so be it. That's also what the ECB does, more or less.
In fact, EU states have a nuclear option that US states don't: they can leave. Greece could (and IMHO should) have left, but they came to the duel underprepared and eventually blinked first. Ireland is not in that position because it relies too much on its status as "tax haven cum operational base" for companies entering the EU market. So you can't leave and you can't keep being a tax haven, but if you play fair you can keep all you got and keep building from there.
> is also hardly representative of the actual elected governments of the various member states
I disagree there, I personally think the opposite is true. National governments hold too much sway on EU policies. The Council (i.e. governments) sets the agenda and then hides behind the Commission tasked to implement it. Some Commissioners are little more than puppets doing their governments' bidding (one McCreevy comes to mind, as well as one Dijsselbloem more recently...). EC governments nominate ECB figures then hide behind them when they have to make unpopular choices. They vote for directives in political contexts ("I give you this so you give me that") then feign ignorance when obligations come due.
I think EU institutions represent EU governments all too well. EU people, that's a different story - they have EuroParliament, and a fairly sane justice system, but could do with more representation.
> most EU states do not want federalization
Most EU states say they don't, but in practice they do. It makes life easier for everyone, keeps the peace, and protects the block from US/Russian/Chinese power. There will always be critics, but hey, that's life.
> if Ireland was setup as a tax haven like Luxembourg the EU wouldn't give a damn
Actually Luxembourg was in a pickle not long ago, because of their tax affairs. The difference is that Luxembourg will never be a competitor to large countries "where it matters", so it's given a bit of leeway; plus, its representatives are first-class and know how to play the game. The Netherlands is the other country with iffy tax arrangements, and they compensate again by playing the game (which means, they take the hit for France or Germany when there are hard decisions to make).
> it's an island with 5M people
Norway has the same population. Actually, Norway has 5M and Ireland 6+M.
> I don't understand what does naval access have to do with this argument
I'm just saying there are many ways to attract business.
> California, one of the most powerful states in the US, has been on the verge of bankruptcy for several years now.
No, it hasn't. It was, until the supermajority budget requirement was removed, in perpetual legislative budget crises engineered by the legislative minority which had sufficient clout to prevent a supermajority, but it has never been "close to bankruptcy".
Fair enough, I don't keep up with Californian affairs that much. Still, I don't believe the FED ever considered substantially altering its monetary policies to suit a given state budget. Am I wrong?
> Still, I don't believe the FED ever considered substantially altering its monetary policies to suit a given state budget.
Not only doesn't it, but monetary policy isn't a suitable tool for that anyway. Even for the federal budget; in fact, one of the major reasons for independent central banking is to provide assurances to the private economy, currency users, and, particularly, those financing government debt that monetary policy will not be used to address the currency-issuing-government's fiscal condition (a trend that was distressingly common even in large, basically stable governments before independent central banking, and produced distrust in both government securities and currency.)
OTOH, the federal government's fiscal policy often directly addresses issues that may be particular pressures on state fiscal condition (and, indeed, many government programs -- including the big social benefit programs like Medicaid -- have regular adjustments to federal/state sharing ratios based on relative state economic conditions that are entirely designed around the premise that state economic conditions will drive state fiscal conditions and ability to participate.)
Which is exactly my point, the FED would not have gotten into this mess, and the ECB also shouldn't have.
The ECB was out of line not only in regards to common sense but in it's essence in regards to it's mandate.
The FED would not have have messed with the state notes, and it would surely not have threatened to shut down it's banks by saying it would not guarantee their liquidity and cut Cali banks out of the dollar payment system if Cali dares to allow it's private investment banks and bond issuers to declare bankruptcy.
>Otherwise we'd have kept the Common Market we had in the '80s, with all the instability that the multi-currency setup brought. For all its faults, the Euro kept inflation and borrowing rates extremely low and stable for almost 20 years now. The minute we manage to disentangle public-debt markets from nationalistic sensibilities, we are golden.
Again that's your "opinion" or ideal to be more exact, the facts on the ground that the EU was established on the grounds that the sovereignty of it's member states will be maintained at virtually every cost.
This is why there is so much contradiction for example each member state has it's own foreign policy but the EU as a whole also has one, on many occasions especially in regards to polarizing subjects the EU foreign policy and statements contradict the ones of individual member states.
>No, I don't think so. States do suffer a lot even in the US setup. As I said, the difference is that at the top you have someone who cares deeply about electoral colleges, especially in marginal states. In the EU there is nothing of the sort, so all pressure has to come from coordinated alliances between member states in the Council.
The states in the US are the legislative body which also holds the federal budget, oddly enough if you take the US federal model then states have more "sovereignty" in many aspects as well as more support and political influence over the federal government.
>The FED looks at the US economy as a whole and does what it needs to do to keep the overall system afloat; if that means Alabama gets screwed, so be it. That's also what the ECB does, more or less.
You are taking my analogy into the wrong direction.
The FED would not intervene in the case of California which is exactly what the ECB should have done in the case of Ireland, but it didn't it threatened to shut down their banks and cut them off from the payment system, the same threat was also issued to Greece.
This is no more in the mandate of the ECB than it is the mandate of the FED and that was exactly my point if the FED would act like the ECB, Congress would've have burned it to the ground, and if would not stop there.
>In fact, EU states have a nuclear option that US states don't: they can leave. Greece could (and IMHO should) have left, but they came to the duel underprepared and eventually blinked first. Ireland is not in that position because it relies too much on its status as "tax haven cum operational base" for companies entering the EU market. So you can't leave and you can't keep being a tax haven, but if you play fair you can keep all you got and keep building from there.
Article 50 is not a realistic option, it also has nothing to do with how the EU and ECB policies are applied in reality, the fact that you suggest that as an option speaks about the general attitude problem of many people who see the current version of the EU as a stepping stone to anything but a complete catastrophe.
If the EU does not do a complete 180 on it's current policies it would just continue to do more and more damage not only to it's member states but to whatever is left of the idea that it can be more than a shared market and now a concrete anchor around your ankles unless you are in the G20, and considering the current state of affairs in the G8.
I don't object in principle to the idea of a federated Europe (If I were a European national I would strongly object however), but I just don't see it happening and the current state of the EU drive it further and further away, it's policies are destructive and they breed contempt.
If the EU is to become a federation it cannot go on as the Franco-German conglomerate while being indecisive and contradictive.
You can't force countries like Ireland and Greece to swallow it and say I know it's hard now but in 10-15 years when everyone's forgotten about it we might start thinking about federalization again and in 2078 we'll "pay you back".
This doesn't work like that, there is absolutly no political capital for federalism in the EU currently the likelihood of it falling apart completely which is slim as it is, is still considerably higher than it becoming a federated union.
>Most EU states say they don't, but in practice they do. It makes life easier for everyone, keeps the peace, and protects the block from US/Russian/Chinese power. There will always be critics, but hey, that's life.
Most voters within the EU member states do not want federalization and they want their national sovereignty and identity kept as it is, in the past few years it's even going completely the other way.
Federalists within the EU exists, but they exists within the ranks of the elites, a lot of them are unelected Eurocrats that while hold a lot of power within the EU do not have much power in individual states.
There isn't a single member state where this is a popular idea, in most of them even in Germany it is political suicide to even speak about federalization.
>Actually Luxembourg was in a pickle not long ago, because of their tax affairs. The difference is that Luxembourg will never be a competitor to large countries "where it matters", so it's given a bit of leeway; plus, its representatives are first-class and know how to play the game.
Luxembourg is protected by Juncker even tho the EUP is in brussels all the important EU institutions and the money is in Luxembourg the EUP is more or less of a "joke" since The Council of Europe and the Commission do most of the "grownup" work.
If the EU Parliament had power it would look differently rather than being overly representative of fringe elements and political laughing stock that wouldn't get elected nationally.
>Norway has the same population
Israel has 8M
Turkey has 75M
What's the point? Norway isn't in the EU, norway isn't a hub for multinationals, norway is a very rich country due to nationalized natural resources and a very smart investment portfolio.
>Actually, Norway has 5M and Ireland 6+M
No the Republic of Ireland, hence Ireland in this context has under 5M people (4.5-4.6 to be exact), Ireland as a geographical construct has about 6M people but this includes the 1.8M residents of Northern Ireland which are British nationals at least for the time being.
> Yeah it wasn't pretty. Ireland was not allowed to default on its loans which was what they should have done.
The situation is more complicated than that (IANAL or etc.) The majority of people in Ireland, and the Irish government, had no desire for any kind of sovereign default, and the majority of the Irish bank debt had already been (foolishly) covered by the Irish state on its own initiative. There was still a significant residuum of subordinated bank debt which the Irish taxpayer was forced to bail out as part of the Troika package, though. (Allegedly this was mainly Timmy Geithner's doing, by the way.) The irony is that come 2016 the EU is now trying to prevent the Italian government from bailing out sub debtors in the Italian banks.
The other irony is that TFEU really doesn't prohibit member state IMF access or sovereign defaults at all. In fact it's basically set up to make sovereign default the only safety valve in the Euro area; it was generally understood as specifically prohibiting any form of EU or ECB "bailout" of EU sovereigns. It was only after the fact, when Greece and Ireland were headed for trouble, that the EU member state governments decided that they didn't like the idea of member state defaults after all, and began to interpose themselves between the IMF and those countries. It was only then that the Euro really became a fiscal/monetary/financial rat-trap with no adjustment mechanisms for struggling countries.
As a European, I don't have the feeling that contagion (of any kind) was contained (at any level). So it didn't work and no, I won't take your word for "if we didn't had done XYZ it would be a lot worst"... It's already as bad as it gets.
It was at Europe's insistence that bank debts were converted into taxpayers' debts. Ireland didn't do it willingly. Whether or not it resulted in any good for Europe, who knows.
One known outcome is that the banks in question were protected from the downside of their commercial decisions and Irish taxpayers will be paying for it for decades to come.
Is it Apple's problem that Irish law disagrees with EC agreements?
Yes. To the tune of €13bn.
At the scale Apple operates their legal team should be considering whether the deals they negotiate are legal in all the applicable jurisdictions, not just the local one. The Irish government should also have done a better job, so part of the blame lies with them, but that doesn't free Apple of all responsibility.
In any case, we should be taxing land value. That's harder to avoid: you can't hide land.
However, the nice thing about land taxation is that hiding the ownership doesn't matter: you can see from the land registry that it's owned by Shady Cayman LLC, but you don't care who they really are so long as you have a corresponding payment to the tax authorities. If they fail to pay that becomes a lien and ultimately reposession.
> If they fail to pay that becomes a lien and ultimately reposession
And then someone close the the Government leases back said land for 99-years with little to no actual "rent" money and you're back at step one of the problem.
Isn't land already taxed? I believe it is, so you must be talking about increasing the taxes on land while scrapping the rest. Or even further, probably taxing property (a skyscraper doesn't have too big of a land footprint). A few questions I have about this:
How do you tax companies which rent their office/production space?
Isn't taxing land punishing companies planning for growth? It is not uncommon to buy/rent spaces which you don't need now but you know will be needed in the future?
A land value tax only taxes the lane value, not any improvements. Improvements can make it more valuable of course (e.g. via proximity to work, entertainment, subway, etc.) but the improvements are not assessed.
The idea is that taxing improvements means reducing the incentive to build and ultimately passing along the tax to renters.
A LVT doesn't allow pass through as the supply of land is fixed, and a tax cannot reduce the supply of land. It encourages more intense use of land in expensive areas and reduces land speculation.
You can think of it as a rent to the government for the land.
Growing companies who buy expensive core land are punished for making no use of the land, but if it's a soulless suburban office park or rural land kind of deal the costs are far lower.
Really what would happen is zoning would be looser as the incentives align and therefore a greater supply of housing and offices would follow, aiding growing companies.
This very much depends on your jurisdiction - the UK has local government taxation which is very roughly based on house size or commercial building use, and is capped so everything above a large family house ends up paying the same rate.
I'd be quite happy swapping the transaction tax and council tax for an ongoing property value tax, but I also know that wouldn't be very popular in the UK which is so dependent on house price inflation.
How do you tax companies which rent their office/production space?
You don't, you tax the rentier. Whether the property is let or not.
Isn't taxing land punishing companies planning for growth? It is not uncommon to buy/rent spaces which you don't need now but you know will be needed in the future?
The process of "land banking" by e.g. Tesco is controversial in itself, since it potentially results in land and buildings left idle or even rotting while everyone waits for the expansion. It obstructs the use of land by others who want to put it to immediate use.
How do you deal with real estate investors?
Real estate investment is usually heavily geared and pro-cyclical, so I'm quite happy to stick them with a tax bill. Especially if it might prevent another 2008 boom/bust cycle.
It's a form of social engineering, like everything else in the tax code, and requires a bit of attention to detail. How to avoid ruining family farmers while discouraging people from reserving vast areas for sporting estates, for example? What of property-rich but cashflow-poor pensioners (the most common objection)?
>How do you tax companies which rent their office/production space?
You don't, you tax whoever owns the land they rent and the landowner will charge rent commensurate with the expenses he incurs (including tax) by owning the land.
>Isn't taxing land punishing companies planning for growth? It is not uncommon to buy/rent spaces which you don't need now but you know will be needed in the future?
This is already the status quo, though, except now you 'punish' corporations and people for succeeding (making a profit on investments, earning a high income etc.). I don't know how to rigorously decide whether it's worse to punish someone for owning land or to punish them for owning things that aren't land, or to punish them for being personally useful to other people (i.e. profiting from their skills and effort rather than from property that is in their name), but intuitively it seems to me that punishing, and thereby discouraging people from being useful is the worst, while punishing people for owning things is not as bad. I'm not sure how society looks when people are adverse to owning land.
>How do you deal with real estate investors?
In what sense would you have to deal with them? Their investments presumably lose most of their value if all present taxes are converted into one (high) land tax.
The finding by EC is that multinational corporations is taxing much lower that corportations in Ireland. If all Irish corporations payed 0.005% in taxes instead of 12,5%, then the EC would have nothing to complain about. However, if Irland did this, I doubt their budget would survive.
Equal treatment of everyone is a critical aspect to prevent corruption and an unfair market. Selectively lowering taxation is illegal, and I don't find that wrong at all.
1. How do they target these companies?
2. Is this the issue then? If it was for all the companies, with no exceptions, would that be allowed?
I'm seriously asking in the hope to get a better understanding, because right now, the way I see it is: As long as they are not breaking any laws, it's their "right" to use any loophole there is, to minimize their taxes (or maximize their profit, depends how you look at it). Is it ethical? Of course not, I'm not arguing about that.
Not all EU countries have the same tax rates so yes, it is allowed to have lower ones. It is OK to have low rates (like Slovakia and some other countries have) as long as the same rules apply to all companies.
Problem with this one is that they didn't and it wasn't a loophole. It was a well understood and by Ireland supported ignorance of existing treaties which have an effect of a law that just finally caught up with them.
Further, yes Ireland can set their own tax rate, however either has to be fairly applied across the board ie every company gets taxed at the same rate. A figure quoted today said Apple were paying £50 tax for every £1,000,000 profit. This is considerably lower than other companies in Ireland were being taxed at. This is the root of the problem here, not that Ireland has low taxes.
I'm taking it from the tact of "it's ethical for two groups to arrive at whatever deal they'd like, as long as no individual is being deprived of his/her rights."
In other words, it doesn't have to be applied across the board to every company at the same rate. If it were, it's unlikely that Apple would have chosen this arrangement with Ireland.
You might argue that the people of Ireland are somehow being hurt by this lower rate of taxation, but the money would have gone to the GOVERNMENT of Ireland, and probably not benefitted the people much at all, except some nominal amount to placate their desires and win popular appeal.
I'm super fringe when it comes to taxes and ethics, though, so... no need to agree with me.
Except Ireland joined the EU and with the agreed to the fair and equitable taxation policies. Simply said the agreement is to tax all businesses alike within your borders. The idea is to promote free trade by preventing state aid. So for example the Irish government cannot give a construction company(A) special tax rate that would be lower than that of another construction company(B) as this would give (A) an economic advantage allowing them to submit lower bids for work than (B). So to ensure a level playing field for all you must treat companies equitably, so corporation tax is a flat rate on profits for the small corner shop to the large multinational.
The money would go to the Irish Government, which isn't some African corruption ridden state, so it would have gone on improving things in Ireland.
For example it costs approx €1bn a year to maintain their water supply. As an austerity measure they have had to recently introduce specific water rates rather than cover it from general taxation. This tax bill (if paid at the time it was properly incurred) could have prevented the need for that for a decade or more, and at a time when there was an economic crisis it would have meant consumers having more money available. Instead it can now only be used by the Irish government to pay off their deficit, which is a long term benefit to the Irish people.
Except the payment would be made by Apple to Ireland and not to the EU. And specifically Ireland can only use it to pay down their deficit. So they are kind of doing Ireland a favour here, Ireland get to claim the tax from Apple but by contesting the original ruling they can try to curry some favour with Apple to prevent them moving their business entirely from Ireland.
To be fair to Apple there wasn't a clear precedent set before this.
There definitely is now though and you can be sure legal teams around the world will be advising senior leadership teams to rearrange their corporate structures accordingly.
The whole situation is a fine line. Look at one of the criteria that Ireland ran afoul of: "the basis of profit determination for companies in a multinational group departs from internationally accepted rules"
Which of course is amusing because there aren't really any internationally accepted rules. Companies like Apple e.g. Ikea, Coke, Google etc all do this and many countries allow it in particular the US.
I think it's fantastic that this precedent has been set. But it is a precedent none the less.
But low tax rates are not "state aid", "aid" is an English word meaning giving something to somebody. "Tax" means the opposite: taking it away.
The EU Commission is now engaged in a rather grotesque power grab in which despite having no mandate to interfere with member tax policies they are attempting to gain control anyway, without treaty change, by redefining low tax rates as a kind of subsidy.
There is no real precedent for this kind of legal abuse - to claim Apple should have anticipated it is absurd.
EU has held for almost two decades that "an effective level of taxation which is significantly lower than the general level of taxation in the country concerned" constitutes "harmful tax competition". The most logical way to undo such unfair benefit is to rule the company to return the unfair benefit it gained with interest. I don't see anything but a welcome measure to level the field for competition.
When advancing wildly heterodox ideas, one is well advised to be prepared to defend them. Do so well, and you may make your audience thoughtful; do so poorly or not at all, and you only make them annoyed.
What actually happened between IE and AAPL is on the verge of extortion and bribery - the only difference is not on personal level but on Gov vs Bus.
We should heavily penalise this, as AAPL literally stole money from both US and EU people. Because of this arrangement: Apple paid less taxes in US, hence US people have worse roads, healthcare etc. To the same in EU (but here by bad IE decision). Money taken is on AAPL accounts now.
Long story short:
Apple promised IE to incorporate there, to do a lot of business through IE, to open job positions. In exchange they asked for low special tax. They also said: if no low tax for us, we will do all this things in different country.
Questions:
1. how far is this from extortion? Should we allow this?
2. did IE gov make a good decision (14mld is of lesser value than apple benefits given to IE) ?
3. why this was decided non publicly?
4. should we allow corpos to make such decisions (dodge taxes) ?
Companies make deals with governments __all the time__ for tax breaks and government subsidies. Governments want jobs and investment, companies want the best deals they can get.
This is NOT extortion or bribery, just everyday business. It happens every single day even between US states, not to mention nation-states. Business is competitive and that's a good thing.
AAPL in this case has deferred taxes on profits with their structural arrangement, NOT avoided them. To call it theft is extremely ignorant of how taxes and governments work.
> Companies make deals with governments __all the time__ for tax breaks and government subsidies. Governments want jobs and investment, companies want the best deals they can get.
And it's honestly one of the bigger problems of the world today. There was a Planet Money episode where they presented the data from jobs "created" in Kansas and Missouri through tax breaks. It was something like: Kansas stole 5000 jobs from Missouri through relocation of offices in Kansas City, and Missouri stole 4000 jobs from Kansas the same way. So millions offered to companies to get a net benefit of basically zero.
It is a problem but unfortunately not a solvable one.
It's the equivalent of paying everyone the same wage. Countries are going to aggressively compete for talent just like companies do. And whether it's offering them different tax rates, amending employment laws, building infrastructure for them etc countries are going to bend over backwards.
While you might be right in the US (I don't know), it is illegal to have fiscal deals with the government in the EU, which is the very ground for the court action in the first place.
From my perspective (as a EU citizen), it is the right thing to do (no allowing special deals). How is that a fair landscape for competition? It's not. If you want to do business in the EU, you have to obey EU laws, just like everybody else.
Furthermore, government officials agreeing to tax cuts should be tried for abuse of public assets, in my opinion. That's however a separate issue in this case, Apple does no obey EU law no matter how guilty politicians are.
Yes, it happens very often in EU countries too, and because of that the EU has very strict rules what sort of help is allowed, to stop countries undercutting each other and racing to the bottom.
How can governments "make deals" with individual companies? Aren't governments making laws and the laws apply to everyone?
Giving a tax break to some specific kind of company (e.g plumbers or taxi companies) sounds dubious but doable.
To my ears this just sounds like the Irish government tried to "make a good deal" with Apple, but the law doesn't allow it. Which sounds obvious.
It feels like a clash of company and government culture: the US one where companies try to get "deals" from states in return for doing business there, and the European one where they can't.
Laws apply to everyone, but are selectively enforced. This is why this story is about Apple, and not some no-name mom-and-pop shop that is in equal violation of the law.
The laws are designed to make the extortion impossible. If one state isn't allowed to undercut another for an individual company then the "or we'll take our business elsewhere" question isn't possible.
>The laws are designed to make the extortion impossible. If one state isbn't allowed to undercut another for an individual company then the "or we'll take our business elsewhere" question isn't possible.
Those are EU laws. Apple could have taken their business anywhere else, including outside EU where such laws don't apply, and a country could undercut Irish taxes.
That said, I'm not against an international agreement to prevent that (though I don't think most countries will be willing to sign it, as they lose their negotiating advantages compared to other countries, and no companies would prefer them all other things being equal).
Agreed, to me much of the point of the EU is ensuring countries don't undercut eachother on product safety, environmental regulation, tax laws etc.
Ideally these things would be regulated in global agreements too, but that's harder to achieve.
I'm fine with Apple moving all of their business to China to dodge high taxes in the EU.
> Apple could have taken their business anywhere else, including outside EU where such laws don't apply, and a country could undercut Irish taxes.
Yes, Apple could do that. But then they'd have to pay EU customs and other costs that aren't applicable when you do business inside the EU. They choose to be inside the EU for a reason, and they should pay accordingly.
Hollywood interests managed to get employment law changed in New Zealand. The law. They didn't even remotely try to hide who was doing it, either. The sad truth is, it probably actually is good for our economy.
Apple did not "literally steal money" nor did they "extort or bribe" anyone. Both of those are criminal offences and people would be going to jail. Nobody who is looking at this through a reasonable, mature lense would ever resort to cheap hyperbole.
And you are completely wrong to say that this decision resulted in Apple paying less taxes in the US. They paid less taxes in Ireland not the US.
>> as AAPL literally stole money from both US and EU people
Well you have US Govt now arguing on behalf of Apple, which suggests that US people were not going to be the losers.
The losers are people of other countries where Apple and other MNC's don't pay their fair share of taxes.
The plan is to hoard this money in low tax jurisdictions and I guess for 2 purposes
1. wait for a lower tax rate amnesty to be offered in US
2. use cash hoard to undertake overseas acquisitions to grow the US Company and by extension US influence.
Apple finds it better to take loans out in US for its cash needs there and write them off against US incomes inspite of sitting on more than 100b in cash reserves.
But no taxes were due, according to the tax collectors themselves.
Meanwhile the EU is not a tax collection body, it does not set tax policy and it does not issue tax rulings. It has no power to do this and I'm unaware of any countries that want it to have this power.
oh they were. it's actually quite clear: if you exempt some corp from taxes you are paying them the exempted sum compared to another business not receiving the exemption.
In my opinion it is highly unethical to construct such financial mechanisms with the only aim to reduce tax payments.
It's not about lower taxes in general, it is about lower taxes for a single specific company. And that constitutes state aid which is (mostly) forbidden under EU rules, as it is massively uncompetetive.
You make it sound legally straight forward, but I can't see how this constitutes state-aid; the double-Irish and dutch-sandwich were/are completely legal tax-avoidance schemes, for instance.
Apple isn't headquartered in Ireland, Apple Sales International and Apple Operations Europe are. The EU says these subsidiaries have been making untaxed profits, but it's not obvious that they've made any profits, ever (that's the whole point of the tax scheme in the first place.)
The grey area seems to be that there has been a cash hoard in Ireland which legally is on the Apple Inc. balance sheet, but hasn't been taxed. Again, however, Apple Inc. is not domiciled in Ireland so it's not the Irish governments job to collect that tax.
> the double-Irish and dutch-sandwich were/are completely legal tax-avoidance schemes, for instance
Are they completely legal or is this just a case of they are legal, until a court finds that they actually aren't legal.
Even if they are legal, I would argue that convoluted schemes to avoid paying taxes is unethical in the same way that moving manufacturing to a place with lax environmental or labor laws in unethical. Apple might be able to make phones with what is effectively slave labor legally, but they shouldn't.
> Are they completely legal or is this just a case of they are legal, until a court finds that they actually aren't legal.
To the extent that things are generally legal until they aren't.
The complaints from the US treasury are that the decision goes against pre-existing case law, and so shouldn't be applied retroactively. [1]
A 'power grab' is an adequate description of what's going on; the EU commission is basically forcing member states to redefine their own arm's length principle and their application of it. They would call it 'tax harmonization.'
Not taxing someone is not the same as paying them! By that logic I am paid by the government every time I listen to Simply Red without them taxing me for the privilege? Why am I not rich then?
Damn me, the linguistic backflips in this thread are amazing. Tax is the taking of something. Low taxes mean you take less, not that you are generously paying people!
> Not taxing someone is not the same as paying them!
That is a terrible straw-man - no one ever claimed that in this thread. Additionally - your argument relies on word play: in practise, Walmart giving you a $10 bill after you buy a $100 item has the same effect as giving you a $10 discount on the item.
When one corp (Apple) pays less taxes than others in the same jurisdiction (Ireland in this case), it is unfair - logically and according to European law. If Irish taxes were uniformly low to all companies (including the German, French & Greek ones), the EU would have no case.
It's not a straw man: the EU itself is claiming it - that's what the entire thread is about. If the EU isn't claiming that low taxes are "state aid" then why are they using state aid rules to try and enforce a tax rise?
in practise, Walmart giving you a $10 bill after you buy a $100 item has the same effect as giving you a $10 discount on the item
I guess you meant a $90 discount? But regardless, the wordplay is on your side: if Walmart charge you $10 for an item then by definition that item costs $10. If they charge other people more, perhaps because they don't have a loyalty card, that doesn't mean they're giving you "aid" under any normal definition of the term as they're still charging you money. Aid would be if they gave away their products for free, or explicitly made a donation to some cause. Merely having differential pricing isn't "aid" for the same reason that an airline charging me less to fly economy isn't "aid", nor is it a discount.
When writing laws, it's best if they can't be circumvented by obvious semantic games. That's why our judges are humans, and not computers—if someone is trying to jump through a semantic loophole, having judges decide the case can prevent that.
In this case in particular, describing the financial benefit as "lower taxes" instead of "giving money", when "giving money" is illegal, probably isn't a loophole that should be allowed, when the result is the same.
There are two things to keep in mind:
* Tax laws are (not theoretically) changed retroactively, i.e. even if no taxes were due at the time of filling, that may change.
* Law interpretation and/or leading acts may change (again retroactively), i.e. taxable amount, various exemptions, etc..
Some countries may pat you on the back for finding loopholes in the law while other may simply order one to pay hopefully without calling that criminal offence. We have no idea how this will turn out
It is well understood that retroactive changes to the law are one of the worst things a legal system can do, which is why so many constitutions ban it and why other countries (like the UK) have a strong convention not to do it. The US Constitution bans them explicitly. Yes, of course countries routinely do bad things and ignore convention and constitutional principles, but that doesn't make it suddenly OK.
The low rate of corporation tax in Ireland is not really a loophole, it is a specific strategy to attract employers to a country that might otherwise not have much to offer, and it has worked fantastically well for them. This policy has been in place for decades and it is (or was) popular - the Irish prefer the jobs to the corporation taxes.
What is the EU is doing here is trying to ban tax competition between countries on the grounds that if you don't charge much tax, you're offering illegal "aid". Beyond a strange interpretation of the word "aid" this is really a very serious problem - if the EU successfully forces countries to pick a single corporation tax rate across the bloc under the doctrine of illegal "aid", despite having no mandate to set tax policies, then what comes next? What if the French start arguing that countries with laxer worker rights than France are providing illegal state aid to their corporations?
Zero-rating corporation tax is a perfectly reasonable policy for a country to have, there are plenty of economic arguments for it, and even if other countries might feel the outcome is unfair, well, so what? Competition is about different people making different tradeoffs and seeing what happens: if the Irish prefer to prioritise employment over collecting corporation tax (one of the hardest taxes to collect anyway), why should they be prevented from doing so?
You have missed the point - this is about different companies within one state being charged different rates of corporation tax, not different states across the EU charging different rates of tax.
> if the EU successfully forces countries to pick a single corporation tax rate across the bloc
The EU is forcing no such thing. It is forcing countries within the bloc to not give any one company special treatment. The distinction is critical.
In-reply-to: ZigZigZag: Once again, it comes down to a question of fairness; you describe Apple's tax deal as if it is a conventional part of fiscal policy where clearly it cannot be treated as such (indeed, if it were, and such tax deals were cut fairly across all corporations in this sector, Ireland would have quite some budgetary problems).
The argument is that the deal that Apple brokered would not have been available to any other company.
A country regulating an industry's tax across the whole industry, affecting every player equally, is very different to a sweetheart deal with one company that puts other players in that same market, both at home and abroad, at a grave disadvantage.
The modern EU is based on freedom of access to market and equality of opportunity. This is what is enshrined in the treaty currently enforced. The EU is not forcing "its members to give up tax policy", it is forcing its members to treat companies fairly across the bloc according to those policies which they have each set. Whilst this could be seen as an assault on their sovereignty, for a collective union to work there has to be common rules, and everyone has to play by them; thereby fairness is ensured. Everybody concedes an equal amount of their sovereignty for the common good (c.f. the ECJ). When one country doesn't play by the rules for its own gain, the others are disadvantaged, and so it is only fair that the central body of that union enforces the previously-agreed rules.
> "Fairness for everyone" is the same as "forcing bad outcomes on the individual".
I contest this unsupported assertion; you provide no argument to back it up.
Ensuring a fair marketplace cannot cause "bad outcomes on the individual" for everybody, as this implies nobody benefits from fairness (a.k.a a law-regulated environment) (an everybody-lose situation simply doesn't make sense, otherwise anarchy would have taken hold centuries ago).
> Group fairness doesn't trump individual liberties
... In your humble opinion. This is an ideological statement with no support.
> What Ireland did with Apple is the same as a company hiring away developers from its competition
... Except that it's not the same, as the two are in no way equivalent:
* the labour market is very different to the market for corporate domiciling
* private companies have no necessity to exist; failure (consequent from labour market failure) is acceptable whereas a state's failure (or a diminished form, a state's failure to collect adequate tax revenues) is unacceptable
* The market for corporate domiciling in the EU was regulated and there were regulations in place to prevent this action. There is usually no such regulation in employment law.
So really, the two are not "the same" at all.
> Does it hurt them? Sure
This is in contradiction with your statement "doesn't trump individual liberties, as long as that ... doesn't harm someone else". In this case the poaching company is harming the target company, and so by your argument group fairness ought to trump individual liberties. On the one hand you argue for constrained liberty, and on the other you accept unconstrained liberty. The two aren't compatible on this simple a level.
I disagree that any such distinction exists though. Governments routinely set taxes and tariffs such that they apply to one industry and not another, or put another way, one set of companies pays lower taxes than others do. The oil industry is famously heavily taxed, that does not imply that hydropower companies are receiving illegal state aid.
If a country can't charge different tax rates to different companies based on their own arbitrary policies, then they have lost a significant component of their own sovereignty. If the EU wants its members to give up tax policy to Brussels then they should propose a treaty change and make corporation tax a competency of Brussels, then it can be the EU that decides which companies pay more or less tax according to their own political priorities. But they haven't done that and I bet they won't, because they know that they'd lose any such argument. Hence, the back door approach.
EU governments, including the Irish one, are free to set different tax rates for different industries. (They are not free to set tariffs but that is because tariffs are a core EU competency as defined in the treaties.)
Member states are not free to set different tax rates for different companies. This is part of the deal of joining the EU and has been part of the treaties since the beginning. The only surprising thing here is that it took so long for the EC to stop this.
Ireland did NOT set a different tax rate for Apple or for a specific industry that was basically just Apple. Apple simply structured itself to minimize taxes taking into account the laws at the time. Any company was free to do the same and many did. The structure is so common that there are even two terms that are in standard use to describe this structure, the Double Irish and the Double Dutch.
The EU did not suddenly discover what Irish tax laws were. They were legislated in an open process and were public records and were trumpeted loudly by the Irish government to attract investment. This state of affairs existed for decades. The EU simply wants to get its grubby little hands on Apple's money so they can use it for more dole-outs to friends of the bureaucrats and also use this as a precedent so they can expand their powers into areas where their power has been explicitly curtailed by treaty.
Apple made a business decision to invest in the EU based in part on the tax rates at the time which went into it's calculations of expected rate of return. Of course they probably did much better than what they expected, but many who made similar decisions lost money too. If tax laws are subject to change retroactively, investors have to start taking uncertainty about the tax rate and the expected rate of return into account and will demand a (potentially much) higher rate of return to invest. This is why it's so hard to attract investment in countries without stable governments and a strong rule of law even though the purported rate of return is much higher. If this continues it will lead to further slowdown in the EU economy. The current slowdown is not apparent to EU citizens only because the market is not charging the EU a credit risk premium on EU bonds and so EU governments are still able to fund public benefits by borrowing. This is something that will change quickly and lead to a Greece like situation if the EU starts acting in this manner.
As an outside observer, I did not think Brexit was a great idea but this event frankly is a very good argument for why more countries should consider EUExit and/or the national governments need to figure out how to defang the EU. The EU was supposed to be about free movement, no "TARIFFS" as in impediments to TRADE within the block and a single currency. What it seems to have turned into is unelected bureaucrats in Europe dictating to elected national governments what their tax policy must be.
> Ireland did NOT set a different tax rate for Apple
It allowed Apple to pay an effective rate of tax much lower than that typically required of companies in the sector. De jure, no, they did not set a different tax rate. De facto, yes, Apple paid a significantly lower tax rate.
Eurobond prices are low (negative) because the ECB prints money to buy them. It's a classic case of money printing to fund government spending and it ends with inflation.
Unfortunately inflation stats cannot be relied upon because they ignore large and important sectors of the economy. For example, they often don't include house prices, or stock prices, or bond prices. The real inflationary pain is being felt by pension funds but consumer price indices don't reflect that.
The corporation tax rate in Ireland is 12.5%, and the rate applied to Apple was (eventually) 0.005%: it's the delta between Irish own tax rate and the one applied to Apple that is deemed illegal according to this EU ruling.
If Ireland want a 0% tax rate for all corporations, as far as I know they are allowed to do it. They just cannot afford it.
That's the EU's interpretation of the figures, but that's assuming Ireland should have taxed all revenue across all of Europe. The Irish tax system doesn't work that way though and the Irish government is stating flat out that there were no special deals: the apparently "low" rate is because the EU isn't calculating taxable income the same way Ireland does.
I do not encourage retroactive law changes, but they do happen. Anyway, I think you miss the point (which was not communicated at all).
Long term gains are very hard to pick over short term gains, especially if that would incur some short term loss. The free market [long term] goal of EU can be roughly expressed as a fight for competition over monopolies. It may look extremely lucrative to lower taxes for a corporation to pay significant lump of money (create jobs, capital movement, etc) even at low rate, than to let the corporation set its foot at another country. As it was stated in other comments, a multinational naturally attempts to increase profits by any means and incorporating at different location with significant tax discount is one of the ways. Although, globally (or EU wise) this is simply tax discount for a corporation that is already pretty much resembling a monopoly.
You're right in general but this case is about something else. The commission claims that Apple had a special sweetheart deal with the Irish tax authorities that is not available to other companies that simply abide by Irish law.
Of course, Apple and the Irish tax authorities dispute that and the case is going to court.
Ireland isn't a sovereign country. It's an EU member state. So it's like Apple violating Federal law and saying it's okay because what they're doing is legal under California law.
You've got an unusual definition of "sovereignty".
I'm not sure about US states (I would have thought they are considered sovereign member states of the Federation, but I haven't researched the issue), but the much less incorporated European Union certainly consists of "sovereign" states.
Or was it just a linguistic shortcut for "Ireland has submitted itself under treaties and laws of the European Union"?
You're not sovereign if some other entity can micro-manage your tax policies. It's a big stretch to call U.S. states "sovereign" but even they get to decide on how they give tax breaks.
Ireland is still sovereign. They could pull out of the EU and its rules at any time if they wanted to. Is this different to delegating some aspect of trade to WTO rules?
If the U.S. doesn't sign the TPP, it is not bound by it, regardless of how many other countries support it. But, e.g. Massachusetts was bound by the Defense of Marriage Act for ~20 years even though a majority of its Congressmen and both of its Senators voted against it. That's not sovereignty.
EU rules are like U.S. federal laws, not WTO treaties. Member states can be bound by them even if their representatives vote against them.
They can only micromanage your policies if you specifically allow it beforehand.
If you follow your line of thought a bit further to its extremes, your home state is not sovereign, because its administration ordered some paper clips from a supplier and is now bound to pay for them, without the senators being asked if they really want to pay. ;-)
> They can only micromanage your policies if you specifically allow it beforehand.
A formerly sovereign state can choose to give up its sovereignty to join a larger union, as the U.S. states did and as EU member countries have done.
> your home state is not sovereign, because its administration ordered some paper clips from a supplier and is now bound to pay for them, without the senators being asked if they really want to pay
They're not obligated to pay for the paperclips. E.g. if the U.S. government fails to pay for paperclips you sell it, you can file a claim in the Court of Federal Claims, but only because the government has chosen to waive its sovereign immunity as to such claims.
Which brings it back to square one: Ireland complies with the EU micro-managing (like the the US on the paperclip contract) because it has chosen to waive sovereign immunity from other countries' intervention into its tax policy.
Apple is not an innocent Irish taxpayer quietly filing their forms at the local post office. They are a market leader in "tax efficient" structures involving Ireland. They knew that Ireland was in violation. They knew it better than Ireland did. Unlike actual Irish people, Apple chose Ireland for its tax law. Apple now must live with that choice.
"the Commission says both companies should have been taxed by Ireland on the basis of their worldwide income."
"These profits allocated to the 'head offices' were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force."
It seems it is not an Irish problem, but more a European one, and it appears that there are some technicalities that allow the EU to request Apple to pay taxes.
Let's not forget that regardless of Apple complying with local tax authorities, these laws may be against EU treaties... "[the Treaty] generally prohibits State aid unless it is justified by reasons of general economic development"1
That would be the case if Apple only used those tax cuts to do business inside Ireland.
But Apple used those cuts, sold products all over EU and then tried to pay (or actually not pay) their due taxes to all those EU countries where it did business back in Ireland.
Apple was not trying to use the Irish law, Apple was trying to use a loophole in EU that didn't actually existed and got caught.
"Apple, which with Ireland said it will appeal the decision, paid tax rates on European profits on sales of its iPhone and other devices and services of between just 0.005 percent in 2014 and 1 percent in 2003, the Commission said" .....really 0.005???
The fraud is that there are many who feel no company should be able to shop around for a better tax deal and no country should be allowed to give them.
This isn't about fairness but instead so that other countries don't have to correct their spending issues and can inflict the same pain on their contemporaries.
Even in the US there are politicians who want to have all states implement similar taxation rules or penalize those who move one state to live in another. The absurdity of taxation rules never ceases to amaze me, let alone the punitive actions of politicians who go after people and groups who don't adhere to their rules.
Worse, the EU tends to think of beneficial tax polices to people and corporations as subsidies where in the US the government calls it a tax expenditure.
People need to wake up. Taxation view points are closely paralleled to privacy issues. Politicians and many left leaning groups think that all money belongs to government as do most rights. The same goes for privacy rules, in that many think you should have protection only from other individuals and private groups by government does not have to grant the same and in fact can decide how much you should keep.
> The fraud is that there are many who feel no company should be able to shop around for a better tax deal and no country should be allowed to give them.
That is most definitely not fraud. Fraud involves deliberate deception for unlawful gain, none of which are involved in tax shopping.
> The fraud is that there are many who feel no company should be able to shop around for a better tax deal and no country should be allowed to give them.
I don't think 'fraud' means what you think it does.
is the link to the EU press release that answers your question. Irish govt. tax deal is in violation of EU tax law and the EU recommend that the Irish govt. seek recompense to the tune of €13bn plus interest.
So, the Irish Government's tax deal with Apple violates EU law. I think that's clear. It's not at all clear as to which party if any was committing fraud.
The fraud part is still only an accusation so far untried by law, but the EU report mentions that:
> The two tax rulings issued by Ireland concerned the internal allocation of these profits within Apple Sales International (rather than the wider set-up of Apple's sales operations in Europe). Specifically, they endorsed a split of the profits for tax purposes in Ireland: Under the agreed method, most profits were internally allocated away from Ireland to a "head office" within Apple Sales International. This "head office" was not based in any country and did not have any employees or own premises. Its activities consisted solely of occasional board meetings. Only a fraction of the profits of Apple Sales International were allocated to its Irish branch and subject to tax in Ireland. The remaining vast majority of profits were allocated to the "head office", where they remained untaxed.
...
Inforgraphic from same link, notice the text to the left in the red box.
> Read how Tim Cook publicly considers Nobel economist Joeseph Stiglitz as a one who do not know what he (Stiglitz) is talking about. Eye opening.
TC's answer was about repatriating money, not about tax reporting in Ireland. I'm not sure why he chose to answer that question, but the reporter let him get away with answering a totally different question.
1) This rule is part of the treaty in which Ireland joined the EU - which was the very first thing added to Irish law.
2) That treaty (which is part of Irish law) allows for certain kind of EU laws (called "regulations") to be directly binding without the Irish lawmakers needing to do something actively. Your link covers another kind of EU laws (called "directives") which in fact have to be transposed before becoming directly enforcecable. However that treaty (which, remember, is part of Irish law) forces the Irish lawmakers to actually transpose them. If they fail they open the country up for litigiation which makes directives indirectly binding.
You can find out that a country is behaving illegally when WRITING ITS OWN LAWS... So you cannot even be sure to be abiding by the law if you obey a country's laws.
That can happen in every country which has a constitution.
> This is another issue why I am strongly against the EU. You can find out that a country is behaving illegally when WRITING ITS OWN LAWS...
That's true whenever you have international treaties. The WTO has plenty of clauses that go very close to disallowing this type of stuff in slightly different contexts. Same applies to the states within the US. They are bound by federal law in many ways.
Yeah, which is why I'm so surprised people are surprised about Brexit. It wasn't some full-on racist rant. Many people just wanted sovereignty for real, including a large number of Labor voters who voted quietly, fearing retaliation.
When you can't write your own laws, and you don't get to elect who does, you're not really sovereign.
What is in the interest of the German economy seems to be what determines EU and ECB actions, whether it's setting interest rates, applying rules or deciding what 'deals' to investigate.
The EU, did it go hard after VW?
But when it comes to the small fry, rules is rules.
The US, which went hard after VW, is not particularly known for going hard after the environmental footprint of it's domestic brands. Yes, VW cheated, but exposing VW as the sole bad guy considering US gas prices and mileages is quite an impressive trick to pull off.
I don't understand the moral equivalency that you are implying there exists between US gas prices etc and VW providing fabricated statistics.
My point is that the EU and Germany failed to uncover this.
Also Germany and France have both in the past chosen to ignore the rules of the EU/Euro club without sanction.
That it is far easier for the EU regulators to pick on one of the small fry countries and make negative findings is my argument.
VW cheated, but the bigger moral problem and the underlying topic is not the cheating but the pollution that was hidden by it. And suggesting that VW is polluting more than US brands is just nuts.
Edit: Just wanted to make clear, that of course the cheating should have totally been caught in Europe earlier. The thought that the US is not biased with its domestic brands just made me chuckle.
> Who suggested that, or for that matter who suggested that "VW is polluting more than US brands"?
So we can all agree, that governments favouring their big domestic companies is not just an EU thing. You criticized the EU for going after Apple and not VW, I made clear that the US is going after VW and not GM.
If you tax something, you get less of it. Either because you actually really get less of it, or because you encourage clever accounting. (Just look up Hollywood accounting..)
People making profit isn't something we need to discourage.
How about taxing CO2 emissions and eg alcohol consumption instead? (Something we can live with less off.)
And the old classic: put most of the tax burden on unimproved land value. Land's supply is fixed, so there's no economic impact at all.
People working is something we don't need discouraging, not people making profit of them. I hope apple has to pay it and must important, don't have another place to run.
Actually people making ONLY profit is something we should discourage, people investing back their profits and sharing the pie with others is what should be encouraged.
But fair point. And because the bigger players who can hire expensive accountants can always mask their profits, we shouldn't tax profits. It's too malleable. Hey, even VAT is a better tax.
VAT is not a fair tax, as it favours the rich at the disadvantage of the poor. It's everyone paying the same rate on basic necessities, independent of their financial situation. Sure the rich buy more stuff and thus pay more VAT, but raising VAT doesn't hurt a rich person. It hurts poor people, though.
Not every tax has to be progressive. It's enough to make the whole tax system progressive to achieve overall progressiveness. (Tautologically..)
Income taxes or even refunds or a basic income can fix that up.
VAT is mostly flat.
(I am in favour of taxing land by value for most or even all government expenditure. That's highly progressive, impossible to evade, and does not distort the economy at all: land's supply is fixed.)
If you raised VAT even more they would just pass on the cost and make a fuss that it's the governments fault everything is suddenly more expensive. Politically it wouldn't work. If there was a way to globally set the price of a good at one level (iPhone = $400) and then each country could add tax after that so it's clear the company isn't passing the price on to the consumer in various countries with higher sales tax/VAT it might work well.
It's pretty intriguing, and doesn't align very well with our intuition. As far as I can tell, your hypothesis about the impact of VAT is not really supported by that.
The bigger players then avoid even more tax without the expensive accountants, with the burden falling upon everybody else, not least private companies whose owners are based locally and rely on taxable dividends for a living.
Well, they could own virtually no land in Ireland and buy very few physical assets in Ireland (hang on, that's actually already the case for Apple; shame about anyone brave enough to be actually making stuff in Ireland though)
Put another way, why should Irish businesses and consumers pay increased VAT and a new land tax so that Apple's profits can be tax free?
The pub next door doesn't employee ~5000 people in Ireland and pay all taxes on those wages. If you consider the overall tax income generated by Apple as a company having a physical presence in Ireland, it's much much more than the pub next door. So Ireland probably decided to sign an agreement to have a higher total tax income by making Apple settle in Ireland rather than elsewhere.
I don't see why commentators here are so divided, presuming they are not beneficiaries of this system.
The government gets revenue from taxes to provide services. If everyone were to do what Ireland is doing then goverments either have to raise money by increasing other taxes or reducing services.
Either way individuals and society lose. Nobody wins from this race to the bottom.
The bigger question is the presence of these convenient loopholes in the global financial system that benefit the wealthy and privileged but leave everyone else facing clear cut laws that cannot be evaded without serious consequences.
Questioning the legitimacy of taxes, or even society, and getting pedantic about laws in this context seems little more than a self serving tactic to avoid admitting this is obviously wrong. Especially when everyone else without exception is paying their fair share. Here is a better idea, pay your share and then start a debate about taxes and society if you want.
This feels an awful lot like a scam; Apple is explicitly told by the Irish government (the presumable authority on Irish taxes) that what they're doing is fine, then over a decade later the EU steps in and says "you can't do that. pay more taxes retroactively (to us)".
This stinks of ex post facto lawmaking in order to get money from a corporation, and it seems there are a few of us who object to that. I'm all for changing the laws in the present, but I consider ex post facto laws a far worse solution than the disease.
1. Foreign deductions are taxed based on the difference between the locale where the earnings are made and the locale the service/product is provided from. Where the sales division is located has no relevance to taxability, and deductions for sales costs are treated as any other internal service.
2. IP is enforced on the national level, and should not be eligible as a foreign deduction. Good-will also follows the local market.
3. Documentation should be provided that foreign costs are real, and that they are actually taxed. Tax agreements should be null and void if systematic abuse is uncovered.
The problem right now is that no company can compete against these cheats.
Personally, I think Ireland has scammed the rest of Europe for long enough by now.
Likewise, I wouldn't be surprised if a large part of India's competitiveness in asses-in-seats outsourcing is created by artificial tax rule phenomena - and various constructs to exploit these.
The more I read about this the more likely I think this decision could be appealed and overturned.
The initial implication is that Apple specially negotiated a lower tax rate for itself in Ireland. But if you read through the European Commission press release[1], it's not that a special rate was negotiated, but rather Apple Sales International (the Irish Subsidiary) only pays Irish income tax on the portion of its income that comes from within Ireland, which is correct according to Irish tax law. But there's nothing particularly special about this setup that applies only to Apple, and from what I can tell, any other corporation operating in Ireland could have also set up this arrangement and is subject to the same rules.
It doesn't make sense to me that the EU can compel Ireland to collect more taxes from Apple, if according to Irish tax law, they've already paid what they owe for Irish sales, and they don't owe taxes for non-Irish sales. Now, there is a separate question, which is can/should every other EU country go after Apple's local subsidiaries for failing to pay sufficient income tax in their own countries (by transferring the profits over to Ireland)? The answer to that is probably yes. If Apple sells an iPhone in Italy for a profit, it should pay Italian taxes on those profits, and should not be able to avoid Italian taxes by booking the profit in Ireland. This is touched upon in the press release:
> The amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the profits recorded by Apple Sales International and Apple Operations Europe for this period. This could be the case if they consider, in view of the information revealed through the Commission’s investigation, that Apple's commercial risks, sales and other activities should have been recorded in their jurisdictions. This is because the taxable profits of Apple Sales International in Ireland would be reduced if profits were recorded and taxed in other countries instead of being recorded in Ireland.
It seems more logical to me to conclude that that Apple doesn't owe more taxes to Ireland, instead they owe more taxes to all the other countries in the world where they operate but have avoided taxes by transferring their profits into Ireland.
If both Apple and Ireland are opposed to this I see little chance Apple actually pays this. Ireland's government obviously setup this tax structure intentionally to bring capital into Ireland and will want to preserve this.
I am not too sure how I feel about this. On the one hand I do think Apple (and many other companies) should pay more taxes.
However on the other hand Ireland enticed many big companies to their country on the promise of lower tax. You can't blame Apple for taking advantage of such an offer. They followed the letter of the [Irish] law as far as I can tell (unless someone can correct me?).
I think this could end up being terrible for Ireland in the longer term. Then again perhaps the EU knows that they can't really go anywhere else now so will just have to put up with the new rates or not do business?
> However on the other hand Ireland enticed many big companies to their country on the promise of lower tax. You can't blame Apple for taking advantage of such an offer. They followed the letter of the [Irish] law as far as I can tell (unless someone can correct me?).
There's two separate issues. One, Ireland is cutting taxes far below the EU average to attract all companies they can. That's a dick move, but welcome to politics, it's fully legal. Two, Apple has received further tax breaks on top of that, reducing their tax rate from a crippling, communist 1% to an effective 0.005%. The European Commission found only the second deal to be illegal, and Apple just has to repay the tax difference to the regular Irish levels.
Ireland is still a tax haven, just slightly less unfairly advantageously to Apple.
> Ireland is cutting taxes far below the EU average to attract all companies they can. That's a dick move
Allowing people and their companies to keep more of their money while creating tons of jobs in a high unemployment country. What a dick move indeed. /s
I'd also argue there's very little "Creating" OR "Shifting" going on from Apple in this tax haven.
They can keep the vast "majority" of the (read: "well paid") jobs in Cupertino with Stanford, UCBerkeley, CalTech, etc grads. All the while reaping the tax haven benefits abroad.[0]
Their center in Cork, Ireland is a distribution base, which is different than the product design, R&D, and development that goes on in America. Compared to the amount, in billions, of taxes avoided, the "Tons of jobs" grandparent is claiming doesn't seem to be true.
If you make a deal with a government to pay 0.005% taxes where all other corporations in the same country pays 12.5%, you might want to suspect that something is wrong. Even if you are not paying bribes, it does not pass the smell test.
That is the entire point of this article though. Apple didn't follow Irish laws (where Irish law = EU laws + laws created by the Irish parliament). They followed a deal with the Irish government that was actually against the Irish law.
Even with these baby steps, I like to see that the EU is unifying its corporate tax code. Of course, we do not need to worry about Ireland, Great Britain already made sure their position as English entrance to the EU will stay strong regardless of tax-breaks.
The Netherlands are naughty, too, due to a strange coincidence Ikea Germany has to pay fees of exactly its profits to Ikea Netherlands each year. I think the bigger countries should use their power to end this ruthlessly, since in the end also the smaller countries would benefit if the race to the bottom stops.
Just to be fair:
1. Netherlands profit tax rate is 20%-25%, where Germany: 30-33%. Companies, may take advantage of those difference, but it less obvious evasion than paying 0.005% rate in some tax heaven.
2. Ikea Netherlands has several offices and a lot of employees in Netherlands. They likely provide some services to Ikea Germany.
3. Licensing cost, may have profit component. E.g. I can sell you the franchise for restaurant which takes base cost + some % of your profits.
There are far more obvious tax loopholes that should be closed first, before worrying about taxation shifting between developed countries which taxes on roughly same scale.
I live in Europe and I can certainly see how this seems like a mess and how can a company obey the laws in one country and at the same time being illegal...
I just want to point out something that is often neglected. EU Commission is basically a referee entity. It all starts with someone making a formal complaint about Apple or Google or Amazon and then they check into it. And in MOST cases the complainers are other US companies that feel that their complaints are being neglected in their own country(ex Yelp)
"Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest." (from the official press release)
Maybe Apple spent $10M or whatever in taxes in Ireland over the past 10 years. And of course corporate profits are imaginary so you can imagine them happening anywhere on the globe.
If I owned a small country on an island, I would be more than happy to allow Apple to imagine its profits were on my island and I would only charge $5M for the privilege. And I would be grateful for the $5M.
I don't get how the US government can so strongly advocate in favor of Apple in this case. I am a big Apple fan, but clearly the law was broken. This seems like a slam dunk case. And Apple isn't fined, they just have to pay normal low Irish taxes like everybody else.
Apple broke the law. Ireland provided Apple with false assurances that they were tax compliant, but there was nothing stopping Apple being fully aware of applicable EU tax laws.
Perhaps Ireland should be punished (though the government is already arguing there is reputational damage), but you really cannot reasonable argue that Apple is not culpable.
If they did so, there would be tariffs from their client nations. Then they'd bribe the tariff countries... which is what they're doing now, anyways. So why go through all the trouble of owning a country?
You need to read the mars trilogy by Kim Stanley Robinson. Part of the story is about "metanationals", multinationals that become so rich and powerful they can basically buy a country.
And then where they would see their products, if not by having to pay taxes in the countries where they would ship those products from their own tax free country?
I don't think you get the issue here, a company in the USA can't just come to EU and sell their products without paying taxes... much less a company from a non existing wannabe country.
Ireland's entire strategy when it comes to attracting foreign businesses to domicile there depends on being both 1) in the EU, but 2) lower-tax than most of the rest of the EU (excluding a few micronations). They're selling a tax arbitrage within the EU common market, which doesn't work if they aren't in it! Ireland's domestic market in itself isn't large enough to really attract major international companies to set up European headquarters there.
> Ireland's entire strategy when it comes to attracting foreign businesses to domicile there depends on being both 1) in the EU, but 2) lower-tax than most of the rest of the EU...
This seems like the right way to look at it. If the EU wants to scare off multinationals and signal that this tax haven's days are numbered, why punish Ireland? Its unnecessary.
Okay, the EC is wrong in that lower tax burdens are a form of state aid. Higher corporate taxes also tend to cause all sorts of new ways to lower tax burdens which can mean even less tax revenue, let alone simply up and moving to a more tax friendly environment. The EU needs to worry about Africa soon scarfing up companies looking for a way out.
Then last of all, they are fooling themselves if they don't think EU based companies aren't receiving similar deals. This seems concentrated only on US based companies for the time being.
Finally consider this, countries which lowered their corporate rates found increases in wages and taxes. This includes Canada and Japan
Significantly lower amounts, yes, but certainly not "only on US based companies"
Taking it broader than tax rulings, many other examples exist.
Meanwhile, I read that both Ireland and Apple are going to appeal this ruling, so one can see this as a shot very close to the bow that doesn't make the ones shot at surrender.
I hope the result will be that the ruling that the deal is illegal will stand, with a smaller payback. Reasons? I think it is immoral that large companies can negotiate such deals, and applaud the EU for standing up against their pressure when smaller countries do not have the spine to do so, but do not think all blame lies with Apple.
And with another quirk - this time in US tax laws - the do not even have to pay taxed in the US on those earnings, as they have not repatriated the funds.
How to pay dividends/fund buybacks, without repatriating those funds? Easy: Just issue debt (which your own subsidiary in the British Virgin islands making a killing on IP licensing might want to buy) or have your BVI IP trust fund buy those shares.
Now why would other EU countries let Ireland and the Netherlands get away with these accepted loopholes is a mystery to me, especially since Ireland had to ask for a bailout lifeline, and was in no position to negotiate firmly.
Why the US would allow their truffle pigs to not pay taxes on oversea earnings is clearly the result of expert lobbying.
[1]: https://en.wikipedia.org/wiki/Double_Irish_arrangement