“If you’re worried that the European Union’s announcement that it is going to investigate Apple’s AAPL -0.56% tax strategies is going to create problems for the firm then you can stop worrying,” Tim Worstall writes for Forbes. “For the investigation isn’t into any of the things that people normally complain about over the company’s attitude towards taxes. Instead, it’s into something called ‘transfer pricing’ and it seems quite clear that there’s not going to be any problem here.”

“The things that people generally complain about concerning Apple’s taxes are myriad. The Double Dutch with an Irish sandwich for example (or is it the Double Irish with a Dutch? Not that it matters much),” Worstall writes. “Or the fact that it doesn’t really pay any tax at all on the money it stashes away in an Irish subsidiary. Or the manner in which foreign profits are not brought back into the US and thus don’t pay US corporate income tax. These are all things that Senators and tax campaigners have complained about. But the EU isn’t investigating any of these.”

“At least half of world trade these days is actually one subsidiary of a multinational company selling to another subsidiary of that same multinational. And governments are quite keen on the idea that they get to tax the value that is added within their own jurisdiction. But this is problematic: for estimating the value that is added can only be done by looking at the prices for whatever it is that is being bought and sold. But if we’ve got the same multinational on both sides of the bargain then they could, if they so desired, declare just any old price they made up. And thus they would be able to suck profits out of high tax jurisdictions and into low tax ones,” Worstall writes. “It’s quite clear and obvious that Apple does exactly this. So that’s what is going to be investigated. But there’s a crucial point here which means that while Apple is obviously doing this, sucking profits out of high tax jurisdictions and into a low tax one, that doesn’t mean that this is going to be a problem.”

Read more in the full article here.

[Thanks to MacDailyNews Reader "tom599" for the heads up.]

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