In a victory for corporate taxes everywhere, Apple has been ordered to pay as much as €13 billion ($14.7 billion) in back taxes to Ireland. Or, perhaps, in a loss for workers everywhere, a reluctant Ireland is forced to go back on its agreement with Apple to base its European operations there in exchange for much needed tax breaks. Or, perhaps, corporate tax harmonization has been dealt a terrible setback as the European Union (EU) has claimed their turf in what should be hammered out through an international agreement.
What we do know for sure is the massive penalty, the largest ever imposed, is a big blow to Apple, amounting to …. around 7% of their massive $200 billion cash reserves. Unless, of course, the Republic of Ireland can justify a smaller bill, which they are very much keen to do. So nevermind.
Like corporate taxes themselves, today’s big story is completely negotiable and dependent on your perspective. There will be more to this, but nothing even remotely obvious will happen in the immediate future.
Barataria has discussed this at some length before, but it is worth repeating. Apple has an agreement with the Irish government which verified their interpretation of Irish corporate law. Apple of Ireland (AOI) is not subject to Irish law because it does not substantially operate in Ireland anymore, given that the Board of Directors meets in Cupertino, California.
Ireland agreed to look the other way as long as Apple kept its European operations centered on the island known for being the color of US money and would rather not go back on it. It’s a Celtic loyalty thing meeting an Irish “We want jobs!” thing.
Meanwhile, Apple found a way to run nearly 2/3 of its international profits through Apple of Ireland, paying remarkably little in taxes to anyone.
The European Commission, as the governing body of the EU, felt obliged to step in to put a stop to this simply because this gaping hole in corporate tax law has become very https://visualeconomics.creditloan.com/double-irish-deception-how-google-apple-facebook-avoid-paying-taxes/popular with other companies. It threatens to bring down the entire world’s concept of corporate taxes when the island you can choose to avoid them is very large, very developed, and has wonderful beer.
It seems like a victory for making corporations pay taxes, but it’s very easy to interpret this otherwise. A clampdown on obvious abuses of the system in Europe is a far cry from a global agreement. If Europe feels satisfied that the worst of the abuse is over there is much less pressure on them to be a part of a more comprehensive solution which reaches across the world.
If anything, the situation is more dire in the US. With the only remaining global system of taxation, attempting to tax “US corporations” on earnings from around the world, we are especially left out in the cold. The reforms needed here are deep and vast. Politicians sometimes talk about tax rates, but the problem lies in the definitions of “income” and “expenses”. More astute politicians talk about “offshoring” but the real issue is a question of what is a “nation”. Nothing about this will be easy.
An international agreement would be fabulous, but it’s hardly in the cards. Trade deals have become political poison today, let alone highly complex and far-reaching pacts like the Trans Pacific Partnership (TPP). That has become a highly emotional issue which extends far beyond the obvious problems with it – it is largely unenforceable and often strays very far into the real of legislating by treaty. Many have come to see the TPP, and its possible ratification in a lame-duck session of the Senate later this year, as a call to something like war.
A grand deal with absolutely every nation in the world on corporate taxes? Not likely in this environment, even if one worth a damn could be negotiated.
Now that the EU feels it has flexed its muscle, their own pressure to do something big has relaxed considerably. While they don’t have the fear of trade deals the US does, they have considerably less reason to push one. They’ve clamped down on Apple and the whole “Double Irish” problem and that is that. The EU has declared victory and moved on over much more lame “fixes” such as the first agreement on Greek debt. And the second one. And the third.
When the world hands the EU a political football, they promptly kick it straight down the road into tomorrow.
Where does the order for Apple to pay €13 billion leave us? Nowhere, except the people of Ireland are now a bit richer. If they are sporting about it, they might buy 2.6 billion people a pint of Guinness – which should be taken as a hint. Slainté!