“The European Commission has hit back at U.S. concerns about competition probes into transfer-pricing arrangements by U.S.-headquartered companies doing business in Europe including Apple and Amazon,” Renee Cordes reports for TheStreet. “Both are under investigation for sweetheart tax arrangements with national tax authorities that were deemed to constitute illegal state aid in preliminary rulings by the E.C.”
“The probes concern Amazon’s taxes in Luxembourg and Apple’s tax-break arrangement in Ireland, which is now withdrawing its so-called double Irish tax perk over a four-year period,” Cordes reports. “A month before the E.C. is due to rule on Apple, the U.S. Treasury Department laid out its concerns in a 25-page paper released on Wednesday. Among other things, the paper said the E.C.’s probes undermine the multilateral progress made towards reducing tax avoidance. It also alleged the Commission’s approach is inconsistent with international norms and said the regulator should not seek retroactive recoveries — or back taxes — under what it sees as a new approach.”
Cordes reports, “A Commission spokesperson on Thursday said the E.C. takes note of the white paper and insisted that the E.C. is not unfairly targeting U.S. companies.”
Read more in the full article here.
MacDailyNews Take: In Apple’s case, if the EU demands so-called “back taxes,” it’ll be based invisible legal grounds since the company simply followed the law when paying their taxes:
There was no special deal that we cut with Ireland. We simply followed the laws in the country over the 35 years that we have been in Ireland. If the question is, was there ever a ‘quid pro quo’ that we were trying to strike with the Irish government – that was never the case. We’ve always been very transparent with the Irish government that we wanted to be a good corporate citizen… If countries change the tax laws, we will abide by the new laws and we will pay taxes according to those laws. – Apple CFO Luca Maestri
As we wrote back in April: Apple has repeatedly and confidently stated that they didn’t do anything that was against the law. Therefore, unless the EC tries to change the law retroactively, if that’s even possible, or tries to collect taxes retroactively in some other fashion, Apple is in the clear.
Looks like the EU, as massively bloated, infinitely voracious governmental operations are wont to do, is attempting to rake in even more cash by whatever means possible. Surely if and when they get their mitts on it, they’ll spend it ever so wisely.
Governments and legal systems should tread extremely cautiously when it comes to retroactive impacts. The implication is that “you should have known better.” But that knife is double-edged. The EU has been aware of Ireland’s taxation policies for a long time, but did nothing. That delay constitutes tacit approval, in my opinion, and should be considered grounds for dismissing any retroactive penalties. After all, Apple will not have the opportunity to go back two decades and alter its business decisions in response.
Governments make mistakes. But they should be held to the same standards as individuals in terms of responsibility. I cannot go back and change decisions that I made twenty years ago, I can only change what I do in the present and into the future. Governments are not entitled to legal time machines.
Melvin, would you be against any re-negotiation of the terms in NAFTA on behalf of the United States?
Ireland intentionally to lower tax rates just to lure foreign corporations into Ireland which is a win win situations. First to gain taxes. Second created so many jobs for its people with the sluggish economy. Irish government is very smart. 🙂
They can do that just like any other country. What the EU is trying to do is now say that the game has changed because of the union. Maybe they should have done their homework before all those countries joined.
Nothing new here. Just going after the deepest pockets because government spending is out of control. Trying to balance their budgets out of someone else’s pocket. Hmm…that sounds familiar.
Common practice indeed. Big company asks multiple countries: If I chooce your country to do business, what tax rate can you offer? The country then decides based on revenues to be written in that country, number of employees etc what they would accept. Taxes ARE paid, win win for both. This was during EEC and all its fases until the EU we have today. It is absurd to want the “taxes that are owned” because there is no such thing! Tax rates change all the time and many countries do this. There are thousands of arrangements like these and no way will Apple pay and the rest not.
If the EU cares about taxing, why are the tax rates different in all the member states? Different tax rates for different products, ie food and other neceseties are often a lower tax rate than luxury articles etc.
So stop whining and write new laws and leave the Apples of this world alone, it is useless and hurts both the companies and the reputation of the EU and the country specifically. Untrustworthy trading partners who like to double back on the agreements is not a very tempting proposition!
Why Apple’s Cash May Soon Be On Its Way Home.
http://seekingalpha.com/article/4002072-apples-cash-may-soon-way-home?v=1472136944&commenter=1&comments=show
Excellent article.
Contrary to what I sometimes see posted in Apple comments section and message boards, companies do NOT get taxed twice on foreign profits. The repatriation tax rate is 35% minus the tax rate paid in the country where it was earned.
I predict the EU persecution of Apple’s taxes will fail. That will leave Apple until 2020 to find another foreign made profits taxation arrangement. (See “double-Irish arrangement” below).
Ideally, my US government will become less stupid and welcome in all foreign made profits via a permanently LOWER taxation rate for same. I doubt Tim Cook will get the rate he suggested, but cutting the 35% in half, minus foreign taxes already paid, would be a good start.
It’s now a race between the EU and the US to see who will get Apple’s money. The US government now see’s that they could lose millions to the EU unless they change the laws.
Better to get something than nothing.
Derek – Interesting point, but please clarify a couple of things. One, can we assume the applicable tax has already been paid to the country in which the cash resides? Two, if so, the 35% that Cook and others banter about is something less – in fact it would be 35% minus what ever the rate maybe in Ireland or wherever. Please clarify. Thanks!
Not my expertise. But there are two scenarios here. One is the ideal which is:
• Apple dumps its Ireland subsidiary, which means all its foreign made profits go through the USA tax system.
• Apple will drop keeping foreign made profits out of the USA if/when the USA gets real about taxing said profits.
The other scenario is what we have now:
• Apple gets a decent tax deal in Ireland, until 2020. I don’t yet know/understand what the new tax rate will be at that point. But it is supposed to fit the EU standard, whatever that is.
• The USA has too high a tax rate on foreign made profits, which provides incentive (that ever critical word applied to human behavior) for companies such as Apple to keep foreign made profits OUT of the USA so they can be taxed elsewhere at a more reasonable rate.
• The EU maybe can prosecute Ireland for taxing companies such as Apple at too low a rate. If they can fiddle this odd aspiration, they would then expect companies such as Apple to pay the EU going rate going back to whenever the ‘double-Irish’ system began being applied to them.
• The USA gets NONE of this back taxation.
Where the 35% minus taxation in the country of sales applies would be when a company takes a bit out of Apple’s profits in the form of some sort of tax applicable only in that country. I’m at a loss to know exactly what such taxes would be. It would not be VAT (value added tax) as that is paid by the customer, not the country. I suppose it could be taxes levied on the companies for employee health care, unemployment insurance, etc. No doubt there are odds and end taxes I could not imagine.
That’s all I know/imagine at this point. There are people here with personal knowledge and better insight on the subject. Maybe they can chime in…
Ireland, which is now withdrawing its so-called double Irish tax perk over a four-year period
https://en.wikipedia.org/wiki/Double_Irish_arrangement
The double Irish arrangement was a tax strategy that some multinational corporations used to lower their corporate tax liability. The strategy has ceased to be available since 1 January 2015, though those already engaging in the arrangement have until 2020 to find another arrangement. The strategy used payments between related entities in a corporate structure to move income from a higher-tax country to a lower or no tax jurisdiction. It relies on the fact that Irish tax law does not include transfer pricing rules as does the United States and those of many other jurisdictions. Specifically, Ireland has territorial taxation, and does not levy taxes on income booked in subsidiaries of Irish companies that are outside the state.
The double Irish tax structure was first used in the late 1980s by companies such as Apple Inc.
The Brexit is going to fix so much bullshit.
Ireland is not part of the UK, is not part of Brexit.