“The European Commission will attempt to close a loophole that allows companies to cut their tax bill, a top EU official said on Monday, but the EU executive will first need to persuade member countries to back the change,” Reuters reports. “The Commission wants rules to prevent companies setting up ‘letter-box subsidiaries’ in countries, such as Ireland or the Netherlands, solely to qualify for a softer tax regime and cut their bill.”
“Algirdas Semeta, the EU’s taxation commissioner, wants to insert an anti-abuse clause by the end of next year, allowing authorities to target artificial ‘parent-subsidiary’ schemes that flout the spirit of the tax code,” Reuters reports. “Schemes used by Starbucks, Apple, Amazon and others, operating within the law to minimise taxes, put aggressive tax ‘planning’ at the top of the political agenda earlier this year.”
“But progress in tackling the problem is likely to be slow. Europe is torn between the demands of small countries, such as Luxembourg and Ireland, fiercely resisting change to their low-tax regimes which attract foreign investment, and states such as Britain and Germany, wary of driving away big employers,” Reuters reports. “Taken at face value, the global political direction towards tax reform is clear. But Semeta’s limited success so far points to the difficulties ahead.”
Read more in the full article here.
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While these countries are part of the EU, I think that they should handle their taxes any way they want. These are not really loopholes; it’s simply national policies. If they can’t handle their own tax affairs, a country like Ireland would even be less attractive for corporations. Would they even have any tax income?
Well, that would clearly be contrary to the purpose and spirit of the EU. In many ways, EU is like the US; a union of states with their own laws, operating under a common, “federal” law.
These tax loopholes, and the annoyance by other member states, aren’t much different that the ones which are the reason why so many American banks have their offices in Delaware or South Dakota…
“My advice for those who die, declare the pennies on your eyes.” – George Harrison
To be fair, Apple has thousands of employees in Ireland. “Letter-box” not so much.
There are multiple Apple activities in Ireland. Hq for European Operations, distribution, etc.
There are also activities that are carried out for the sole purpose of execution the Double Irish tax dodge. They don’t employ many people and your won’t find an Apple logo on their doors.
The Double Irish works like this: First, the U.S. company attributes profits to an offshore subsidiary—generally in Ireland, although the technique has been used in some other countries. The company then sets up a second Irish subsidiary, nominally managed and controlled from a jurisdiction, such as the British Virgin Islands or Bermuda, that has no corporate income tax. Intellectual-property rights are transferred to that subsidiary, which then receives royalty payments from the Irish-based subsidiary. The Irish subsidiary, in turn, claims the royalty payments as tax deductions in Ireland.
The legitimate Apple activities in Ireland are something for Ireland and Apple to be proud of. Tax dodges, not so much.
Any time your country has a tax scheme named after it, you probably want to examine your international standing. Think of it in these terms, Pax Americana is paid for with US tax dollars. Anytime you scheme to weaken the revenue stream that funds those international peacekeeping efforts, you are aiding the enemies of world peace. Would you like for your nation to help set up a replay of WW I?
“The Double Irish works like this: First, the U.S. company attributes profits to an offshore subsidiary—generally in Ireland, although the technique has been used in some other countries. The company then sets up a second Irish subsidiary, nominally managed and controlled from a jurisdiction, such as the British Virgin Islands or Bermuda, that has no corporate income tax. Intellectual-property rights are transferred to that subsidiary, which then receives royalty payments from the Irish-based subsidiary. The Irish subsidiary, in turn, claims the royalty payments as tax deductions in Ireland.”
All very interesting, but can you explain how that applies to Apple? Does Apple have a subsidiary in the BVIs or Bermuda? Has Apple transferred any IP to that subsidiary?
Further, I thought this tax scheme was called the Double Dutch and Irish Sandwich, not the Double Irish. So, is it named after Ireland or not?
If you know what it should be called, you don’t need me to help you out.
Nice article! I wonder if the European commission is able to close the loopholes. i think the big companies will always find ways to cut their tax bills.
Many corporations are setting up their European HQ,s in Switzerland in order to reduce taxation from profits earned in EC countries. I take the view if you trade and make profit in my country you must pay your tax in my country not in any another. Otherwise the lowest tax centres will denude the rest of corporate income tax.
The thing of it is these commissions can get tough against business but business will always do what’s right for them and those who try to take more money from them will inevitably suffer (maybe worse) in some other way perhaps unforeseen. So it’s like biting your nose to spite your face. It’s probably gonna hurt you more than it is them in the long run.
If Amazon want to ship goods from a warehouse in the Uk to addressess in the UK they should pay tax in the UK. Same for Starbucks and others. These companies dont pay their workers a decent living wage and rely on the government giving their workforce tax credits and benefits to make up the shortfall. And then to add insult to injury they avoid paying UK taxes leaving the UK government using other tax revenue to support their profits. Those sort of jobs the UK can do without. It also means they can underscut the prices of other retailers putting them out of business – which leads to a loss of work elsewhere. So in short, pay the tax or piss off.
These tax laws are NOT LOOPHOLES people. And they are certainly NOT contrary to the spirit of the EU. The EU was created as an economic zone where companies that did business in the EU could trade freely (OK almost freely) within the EU. It was stated at inception that the the idea was to allow companies, and later people, to move to and do business in the countries with the most favorable economic conditions, whether they be better infrastructure, better governance or more favorable tax laws. It was meant to be a competitive economic zone from the outset.
Those that believe the tax laws need to change either do not understand the founding principles of the EU or, have an interest in protecting and propping up governments that are in some cases less efficient and in others perhaps want a larger share of other peoples money to dole out to their overly fat bureaucracies and constituent elements who suckle on those bureaucracies. It’s not so much protection of businesses per but protection of governments.
“the spirit of the tax code” WTF!
At some point everyone will have to realize that the correct tax rate is the one that covers all expenses incurred by society.
Problem is, the past several decades have seen almost all states in all corners of the world overspending, and so now the correct tax rate is the one that brings in not only current operating costs, but also enough to pay down accumulated debts. The states who ignore this reality by offering special corporate incentives will only be left with a bigger bill later, because a corporation will immediately jump ship to the next tax haven as soon as your nation decides that it wants to pave its streets, educate its people, ensure a minimum level of heath, or otherwise spend money on society.
That is the problem with corporations — they have no loyalty whatsoever to anyone or any community. Any nation that thinks otherwise is deluding themselves. Corporate leaders, almost by definition, are parasites who will do anything to transfer corporate costs externalities onto surrounding communities and governments. After all, dumping pollution or near-slave labor is profitable where there is no law stopping you, and when people start seeing the health impact, government will pick up the tab.
Oh, wait. Most governments can’t pick up the tab. With western nations struggling under he weight of aging populations and aging infrastructure, states are already stretched beyond their budgets. For decades politicians of all parties have gotten themselves elected by delivering debt-funded pork to their campaign funders. Thus now multinational corporations run national governments. First orders of business: increase corporate welfare, cut corporate tax rates. Second step, convince the populace that the reason that corporations are rushing to Asia is because corporate tax rates remain too high. Fact is, corporate tax rates could be NEGATIVE and still corporations would jump ship. Growth is in China, that’s where all the new factories will be for the near future. The corporate traitors will continue to decimate the working and middle classes while continuing to maintain corporate headquarters in the most expensive glamorous western cities, the playgrounds of corporate billionaires.
But the future is obvious. With inadequate tax income, government services are not cut, they are financed by debt borrowed from, you guessed it, Wall Street.. But Wall Street is no fool — they will only fund social and military services. Environmental protection, labor protection, education, basic infrastructure maintenance, policing of business — “first world” nations are rapidly falling apart in all these areas. Those aren’t being adequately funded because there’s no budget for these long-term societal needs. No one to enforce pollution or labor standards means population suffers with no recourse and no ability to hold corporations accountable. “But the river by my house is cleaner than it’s been in decades”, you say? Nope, it isn’t. The upstream factory has closed, so we’re not dumping sewage into our rivers anymore, but that doesn’t mean the silt and brush covering up the decades of pollution has been resolved. You can’t swim or eat fish from your local river in most cities of the western world. But now the corporation has reproduced his toxins in China, where they will repeat all of our shortsighted errors. Is this the future we want? Destroying watersheds one after the other, then moving on to the next? Downsizing government to the point where it can be “drowned in a bathtub” by the greedy hands of corporate leaders?
We can all identify areas where our government needs to be more efficient, lean, and yes, downscaled. However, corporate largesse now dwarfs most nations of the world, and these anti-democratic entities are specifically designed to extract maximum health and wealth from us, primarily to reward the executives, NOT the investors thereof.
Tax equalization and increased corporate transparency/accountability is long overdue. It would be the best thing to ensure that the nations of the world are able to maintain livable prosperous conditions for their people in the long run. Nations that act as tax havens are merely mortgaging their futures and/or (as is the case in low-cost labor countries) holding their inhabitants in corporate servitude. It is — literally — sickening. Apple’s prosperity should not depend on tax dodging or the loopholes of Chinese labor & environmental law.
Corporate “governance” does not exist. Corporations are non-democratic feudal structures that need to be reigned in by sovereign people exercising their natural rights in democratic/republican political systems. Like any other “citizen”, a corporation must be fully liable and fully charged for that which he consumes, without being allowed to jump ship whenever he finds a new state to extort.
CliffsNotes for those who couldn’t be bothered to read the above.
“Corporate leaders, almost by definition, are parasites…”
“The corporate traitors will continue to decimate the working and middle classes…”
“Corporations are non-democratic feudal structures that need to be reigned in by sovereign people exercising their natural rights…”
Wow. Just wow.
These words could have been pulled right out if the Communist Manifesto. [It reads like it too, a long ranting diatribe spewing BS ad nauseam]. Or perhaps this person just tends to see the world as bleak and half empty instead of bright and half full.
You be the judge. 😉
No doubt Mike reads the Gaurdian newspaper – posting his fervent Bolshevik comments there as well.
I am not a communist. Capitalism is wonderful when it is governed through democratic means. Today’s unfettered “free market” capitalists are not. They are feudal lords running roughshod over the democratic states of the world.
Why do you make the extremist knee jerk reaction to accuse anyone who criticizes corporatocracy as being a communist? Not that communism is the dirty word you claim it to be — communism is just another flawed theory that doesn’t take into account human failings. Just as capitalism, in its purest state, is also flawed and unworkable due to human failings. Hence the rule of law, which politically seems best managed by a democratic (or at least republican) regime to represent the needs and desires of a free sovereign people.
The USA and most modern states, by stagnating its legal and electoral systems in early 19th century mechanisms, has lost sight of the fact that corporations have upturned the rule of law such that neither investors (owners!) nor community members have any real power over corporate management. If you think the opposite is true, then by all means, attempt to get a significant shareholder resolution passed in any Fortune 500 corporation. Good luck.
The other reality of today is that politicians are not the wise ex-industry grandees with a sense of public service following a successful career, instead ey are career politicians who are always looking to go into white collar industy at the executive level on big retainers. They therefore do not make difficlt decision or force corporates to pay taxes because they fear that they will somehow limit their own future and prosperity.
When was the last time you heard of a politician with his own set of values ? Most just listen to the crowd to discover what is popular and will get them elected/re-elected.
And all the US Congress has to do is to lower the taxation rate of foreign income to a SANE percentage, which it currently is NOT.
But noooooooo. That’s to logical. US taxes must PUNISH companies for bringing in foreign profits. Companies must SUFFER for it! They must be HIGHER taxes on foreign income than interior income!
IOW: #MyStupidGovernment
Typo Police: Please read “That’s TOO logical. . . . THERE must be HIGHER…’
Nodding off apparently…
Just looking at the UK as we are a large market for Apple, Amazon, Goigle and Starbucks. Could there be a very high import tax on IP which would push up the price of products where the IP was held overseas. These US companies don’t appear to muck around with their taxes on US income just European. Why is it so difficult to say mr US company if you want to sell into Europe then you have to pay tax, we need this to help with infrastructure. if you don’t pay tax you can’t sell here. I used to have a maths teacher say if you can’t see the outcome to a problem take things to extreme. us company oats no tax, uk company does, us company ends up with loads of cash stored off shore, uk company had no spare cash, us company buys uk company, now only one us company in that sector, pats no tax. this goes on through many sectors, eventually all big companies us owned and paying no tax, country goes broke, depression, customers struggling to eat no spare money for coffee or iPads, market dies. companies need to pay tax in the countries they trade in or loose access to the market.