WHY AREN’T WE SO TOUGH ON TAX DODGING FIRMS?
THE robust way in which the European Union is tackling the corporate arrogance, tax avoidance and cultish secrecy of Apple is something to behold. Other authorities, including the government of the United States, have largely given Apple and other digital giants a free pass to trample over the tax codes of countries where it makes hundreds of millions in profits.
It is only in the heat of the current American presidential election campaign that the tax affairs of the Silicon Valley giants – who have parked trillions of dollars in offshore accounts in the Caribbean and elsewhere – have come under scrutiny.
The eye-popping demand for up to €13billion (£11billion) in back tax and interest rate penalties from Apple, which it says are due to the Irish government, is the latest and most significant drive by the EU’s competition arm to make multinational companies engaged in complex tax avoidance play fair.
All this is surprising because generally the EU is a sclerotic and slow-moving organisation. But now the arm that deals with corporate competition has showed itself to have real teeth.
Frankly, it has long been an outrage that Apple and other multinationals are able to act differently to almost all small businesses and citizens who scrupulously pay their taxes in an equitable social contract with their home nations. The take-no-prisoners intervention of the EU also offers a great contrast to the softly, softly approach of former Chancellor George Osborne and Her Majesty’s Revenue and Customs (HMRC) in their efforts to make Google, Amazon, Starbucks and others pay their fair share of taxes.
The great irony in the crushing tax bill apparently being proposed against Apple, for tax avoidance via its Irish subsidiary, is that it is going to be challenged by the government in Dublin.
This is despite the fact that an injection of £11billion in back taxes would make a huge difference to Ireland’s stretched public finances. If these penalties survive the various legal and other challenges, they would be more than enough to cover the Irish government’s borrowing needs – estimated at around £10billion – for the current financial year.
The soft ride Apple has received up to now in Europe has meant that would-be competitors dealing in mobile phones and other high-tech areas simply have not been able to compete because the low tax rates in Ireland have, says the EU, effectively been a state subsidy.
Apple’s deals with Dublin helped it to report profits last year of £15.4billion, making it the highest-earning firm in the world. Not only that, Apple sits on nearly £200billion of financial reserves held in overseas offshoots designed especially to keep America’s tax authority, the much feared Internal Revenue Service, at bay.
Apple’s success in Europe has been partly as a result of a tax scheme deployed with the encouragement of the Irish authorities, which saw almost all profits generated by Apple sales in Europe funnelled through two Dublin-based entities, Apple Sales International and Apple Operations Europe.
The two outfits technically held the rights to all Apple’s intellectual property (its patents and products) outside the Americas.
UNDERwhat is called a ‘cost-sharing’ agreement, they made yearly payments to Apple in the US. These payments were claimed to fund research and development conducted on behalf of the Irish companies in the United States.
The EU investigation found that these expenses – running to billions of dollars – were deducted from the profits recorded by Apple Sales International and Apple Operations Europe in Ireland each year, meaning that Apple paid virtually no tax in Europe.
Apple, of course, is not alone and other giants including Amazon and Alphabet (the owner of Google) can expect to have their tax affairs scrutinised, too.
At a time of budget austerity, finance ministers from all the countries signed up to the Paris-based Organisation for Economic Cooperation and Development – including Britain – have committed their nations to an exchange of information designed to bring an end to tax dodging by the companies most capable of paying.
In short, this economic howitzer launched at Apple is a huge step towards a fairer global tax system.