Treasury accuses EU of trying to steal U.S. tax revenues with Apple decision

“The United States has accused the European Union of grabbing revenue intended for U.S. coffers when it ordered Apple Inc. to pay up to $14.5 billion in back taxes, a decision that could cause friction at an international summit in China next wee,” Jason Lange reports for Reuters. “‘I have been concerned that it reflected an attempt to reach in to the U.S. tax base to tax income that ought to be taxed in the United States,’ U.S. Treasury Secretary Jack Lew said on Wednesday at an event to discuss Washington’s position ahead of a meeting of the Group of 20 industrial nations in China next week.”

“Earlier this month, the Treasury issued a detailed legal argument that the EU Commission’s approach went against European laws. Lew said making Apple pay higher taxes in Ireland could let the company deduct those payments from what it owes to the United States, reducing U.S. tax revenues,” Lange reports. “‘We think that it undermines the environment in Europe for international business because it creates uncertainty that ultimately will not be good for the European economy,’ Lew said at an event hosted by the Brookings Institution in Washington.”

“Apple has said it will appeal the ruling, issued on Monday. Critics in the U.S. Congress have denounced the move as a predatory money grab that would encroach on U.S. government jurisdiction and ultimately add to the federal deficit,” Lange reports. “Lew said it appeared unlikely America would reform business tax laws before Obama’s term ends in January, but that progress could be made early in the next administration. The United States will hold a presidential election on November 8.”

Read more in the full article here.

MacDailyNews Take: Hopefully this EU tax grab fiasco will lead to some common sense solutions.

SEE ALSO:
Irish residents opposed to EU’s tax demand of Apple – September 1, 2016
Apple Inc. pushes back against EU tax grab – September 1, 2016
Apple may repatriate billions of dollars next year after new U.S. President takes office – September 1, 2016
U.S. tax code allows for dramatic retaliation against EU overreach in Apple case – September 1, 2016
Apple CEO Tim Cook on EU tax demand: ‘No one did anything wrong here and Ireland is being picked on… It is total political crap’ – September 1, 2016
U.S. Treasury: The European Commission’s retroactive tax demands on Apple are unfair – August 30, 2016
EU demands Apple pay massive $14.5 billion in taxes plus interest – August 30, 2016
U.S. government warns EU: Do not hit Apple with a massive back tax bill – or else – August 25, 2016

38 Comments

    1. The EU is not asking for America’s tax share of the money Apple has made out of its Irish tax shenanigans. What the EU is asking for is the tax that should have been paid in the EU.

      America and Wall Street might not like it but international tax avoidance is on its way out. Its illegal, immoral and cannot be justified in any way. And certainly not by arguments that its high technology and the pinnacle of creativity so should be exempt. I say this as a long time Apple fan and one who voted for Brexit. I owe no allegiance to any political party or the EU. But I do recognise that certain things the EU organises are valuable and taking on the multinationals is one of those.

  1. Stupid argument. Ireland illegally discounted the tax payable in Ireland. That discount meant Apple claimed less overseas-paid tax when filing its US return.

    It was always Ireland’s money.

    He backs away from the argument later but silly thing to say in the first place.

    1. The US Treasury probably realises that with most of the country’s large multinationals playing the exact same accounting games there are hundreds of billions now at stake, all held in accounts across the world because the US Congress has stupidly continued to refuse bi-lateral tax agreement treaties with other nations.

      1. Too bad the story oversimplifies and doesn’t ever mention paying the farmer for use of land and any tool used to harvest, grind the flour (mill owner?) or use of the oven used to bake the bread (baker?). Each of which could be considered a form of ‘tax’.

  2. It does seem silly that Lew said, “You are taking money from the US.” It’s not anyone’s money but Apple’s.

    If Apple agrees to pay X dollars in a negotiated tax liability, since its retroactive, then that’s the end of it. I think the US should stop all of these comments as it doesn’t look good. They are counting birds in the bush so to speak which amounts to nothing. If they can get Apple to repatriate some of the foriegn based funds, once they are on US shores, then they can start talking about that only. At least the EU is just worried about funds in Ireland. Still a lot, but they aren’t crying about what’s in the US.

    Seems petty.

  3. I’d like to hear correct details from the Americans here, because this sounds awfully confusing, and more than a bit disingenuous.

    Apple’s regional office in Ireland has been reporting revenue in Ireland, and paying taxes on that revenue for the past (almost) 40 years (since before the Macintosh). At some point during those years, the EEC was transformed into EU, and some laws may or may not have changed as a consequence. As a consequence, EU commission is now claiming that Ireland hadn’t taxed Apple correctly, and we now have this disagreement.

    The explanation I am looking for is how is this foreign revenue taxable in America? None of that money ever made it into the US; it never crossed any American border, so on what basis does US tax (or plan to tax) what is essentially a foreign entity (Apple’s Irish office) for revenue generated overseas?

    What US tax revenues is Ireland trying to steal? It seems to me that the only way this could possibly be true is if the IRS had some advance knowledge that there will be a one-time “tax holiday” for American companies operating overseas. Only in such case, if Apple were to be allowed to bring money back to the US (and pay a much lower tax rate than it is now), would the actual amount of taxes paid in the US be lower if Ireland were to get their 12 or 14 or whatever billion in back taxes.

    As it stands, foreign earned money by foreign companies that never made its way to the US cannot be taxed by the IRS.

    Again, can someone clarify this?

    1. “can someone clarify this?…” This is my simple take on a very complex issue.

      1. Apple is very efficient at tax avoidance. That is a key responsibility to shareholders, ie. maximizing shareholder value

      2. Ireland has one of the lowest corporate tax rates in the US and Apple gets a big break on any profit made in Ireland. Apple has a large manufacturing presence in Ireland (approx 6000 employees) and paid $400M in taxes 2014. I am not sure of the %, but that is not 0.005%.

      3. Ireland allowed Apple to structure 2 companies that are responsible for non US sales in EU, Africa and India

      4. The profit from the non US sales through these companies, is attributed by Apple to US based intellectual property (California), and thus tax on this would be normally (and rightly by US law) have been sent to US if not for a high 40% tax rate. Apple is waiting for a reduced rate before it repatriates the tax money

      5. The EU are complaining that they make no money from Apple but member states in the EU make money on Apple products by a tax called a VAT or Value Added Tax. This is a consumer tax that is based on consumption, and eliminates manufacturing taxes etc which are very hard to calculate in complex setups like the EU. VATs are high and Apple sales generates millions and millions. Member states do NOT provide any IP or manufacturing (apart from Ireland) for Apple products.

      6. The EU Commission headed by an anti corporate gunslinger named Margrethe Vestager, have ignored agreements signed between Apple and Ireland 25 years ago, and have determined that tax paid did not cover profit related to EU activity – over past 10 years! Apple sees it differently. The US Treasury sees it differently again – they want the tax to come to the US. Everyone became more confused when Vestager announced yesterday, that the tax was not necessarily only for Ireland, but perhaps other EU countries, India, Africa, the US… (Can she hear herself when she says such things?)

      7. The EU is not happy with any member state becoming ‘too competitive’. Ireland was competitive but is now caught between many big rocks. Take the money.. once and lose reputation, Apple, multinational investment? Or fight against the EU and Cruella Vestager?

      8. This has a lot more to do with EU politics than fairness of taxes. This will become very messy for EU and will disrupt markets more than Brexit.

      1. I understand all of your points perfectly, but none of them answered my question.

        How can the tax revenue in USA be affected by the tax liability of foreign companies in foreign lands for foreign revenue that never came into to the USA?

        As I said above, to me, it looks like the only way would be if Apple wanted to bring that money home. They never did in years/decades before.

        1. It is my understanding that taxes paid outside the U.S. get to be deducted from earnings inside the U.S. (i.e. “written off), thereby reducing the claimed earnings inside the U.S., thereby reducing the taxes paid inside the U.S. Less money to the U.S. government is of great concern to the U.S. government.

          1. Actually, that can’t be possible under current conditions. If the money never comes to the US, it cannot be taxed. Money earned by some foreign corporation (Apple Operations International, headquartered in Ireland), or taxed by a foreign government, can’t affect taxation in the US.

            Let’s put it this way: I have an e-Bay account in the US. I sell things to people around the world. These people pay me, and that money goes into my Swiss bank account. However, since my eBay account is registered in the US, with an American address, I have to report all my revenue to the IRS, including sales made to overseas buyers.

            However, if I create an eBay account in Germany, with a German physical address, and the same Swiss bank account, and sell stuff, I would then be paying taxes to the German tax authority, and not the US. I may actually be living in the US, I may even be shipping the product from the US, but if my business is registered outside of the US, and my clients are outside the US, and my bank is outside of the US, then the IRS cannot and should not have anything to do with this.

            There are quite many foreign companies doing business in America (Samsung comes to mind as a high-profile villain). They have local subsidiaries, they have local customers, and they have local bank accounts in the US. And money they earn by those local subsidiaries is taxed by the IRS. No taxation takes place in Korea, since none of the money ever made it back.

            1. “Actually, that can’t be possible under current conditions. If the money never comes to the US, it cannot be taxed.” You are correct that the money cannot be taxed by the U.S. if it never comes into the country. The point is that if Apple does decided to repatriate funds to the U.S. they will pay the current 35% (tax pie) MINUS the taxes paid to foreign governments (foreign slice) on those funds. Apple is trying to not pay back taxes AND lower the repatriation tax rate to lower the TOTAL tax paid on those monies.

              Your example of the difference in creating eBay accounts in the U.S. and in Germany with you located in Germany (I’m assuming) is analogous to Apple creating stores in foreign lands and the U.S. with their only HQ in the U.S. However the tax law differs if you are a living individual vs a Corporate entity (which is considered an individual in the eyes of the law). For example, if you kept the monies from your sales in the U.S. in a U.S. bank account those funds will not only be taxed in the U.S. but also affect your income taxes in Germany. For Apple this is not true, it is as if Apple exists in multiple in each country and until funds are moved across national borders those funds cannot be taxed outside the country they are ‘claimed’ to be generated.

      2. I have to say, VAT has nothing to do with corporate or income tax. It’s a retail sales tax and you have it in America as well. Yours varies from state to state and in some of them is ridiculously low, but it is the same thing. It isn’t a substitute for corporate tax. Not in EU, not in USA.

        1. Predrag. Your comment on VAT and sales tax is uniformed. Both provide revenue to governments but they are very different. VAT in EU countries makes a LOT of money from Apple sales, on top of any remaining taxes built into the EU price of a product.

          Sales tax, as compared to VAT is a percentage of revenue imposed on the retail sale of goods. Unlike VAT, sales tax is levied on the total value of goods and services purchased. VAT is an indirect tax that is imposed on each stage of production or modification of an item or service. In this case, it is quite important as VAT is successful in avoiding the tax evasions that is frequent in sales tax. As far as I know the US is one of the few countries that does NOT collect a VAT . There is a large debate on this as it could essentially wipe out debt – that is how huge the revenues are potentially.

          1. While you are correct in that there is a substantial difference between the two, for Apple’s EU operations, there is practically very little difference. Most of Apple’s revenue in EU is derived from selling goods produced elsewhere. So, that VAT is essentially as good as retail sales tax, since it is applied to the final retail price of the product. There is no manufacturing in EU (except form that iMac production line in Ireland), so other than the few iMacs made and in EU, for which VAT was also paid in earlier stages of manufacturing, all those iPhones, MacBooks, iPads and others came from China assembled and packaged for sale. If my understanding of the difference between VAT and sales tax is correct, for these products, conceptually, VAT is no different than US sales tax.

            America allows businesses to purchase materials, tools and everything else needed to operate a business tax-free. The philosophy shifts any taxation on the revenues generated from business. This allows businesses to be more effective in the process before the sale, and taxation only happens if you actually sell something. The VAT concept taxes you on everything you buy for your business, so the final corporate tax rate is lower.

            American businesses argue that the corporate tax rate in US is too high, and should be much lower, like in the EU countries, neglecting to acknowledge the VAT that EU businesses must pay for all goods or services they buy in order to run their business.

            1. “America allows businesses to purchase materials, tools and everything else needed to operate a business tax-free.”

              Actually, this would be true only if businesses sold to other businesses as completely wholesale (e.g. making no profit in the transaction, acting solely as free transit). Very unlikely, and even then there is a small tax on that transaction albeit a magnitude or two lower than retail. One of the few reasons a company would do this (and basically take a loss) would be to secure future business or is a way in which different business in the same larger business structure transact sales to lower taxes. In the company I work for those taxes are at the State level as Excise taxes. No licensed business in the U.S. as far as I know escapes paying that. I would think this tax is analogous to what you refer to as VAT.

    1. Finally, an answer, buried in the last paragraph of that article:

      …”Treasury Department warned that an American corporation like Apple, ordered by the European Commission to make tax repayments, might eventually use such payments to offset its U.S. tax bill “when its offshore earnings are repatriated or treated as repatriated as part of possible U.S. tax reform.”

  4. When an American lives and works overseas, (s)he is still responsible to file taxes to the US on any and all income earned overseas (or anywhere in the world, or beyond). All that foreign income is reported and it is taxed exactly according to the same rules as within the US. However, if any local income tax is paid in the country of residence, that paid amount can then be deducted from the taxes due to the IRS. If the local tax ends up being greater than what is due to the IRS, then this American doesn’t owe anything to the IRS (because the locals have already taxed him heavily). However, if this American renounces his citizenship and takes up the citizenship of another nation, he is no longer required to pay US taxes.

  5. Oh my goodness that country is accusing the EU of trying to steal their tax revenues. That’s worse than having a weapons of mass destruction no doubt. With their erection will soon be over they will want to put it somewhere, warm up the nukes, pass out the depleted uranium bullets, clean off that vacancy sign at the lovely Guantanamo on the Bay resort and do what they have been doing since the very start of their inception, war.

    The alternative, well the NY Times has a nice editorial “Apple, Congress and the Missing Taxes” where they state “The way forward is not to declare a tax war with Europe. It is for Congress to agree on a way to tax foreign-held corporate profits.”

    Well that country isn’t moving forward time soon, so I guess what to expect.

    1. That does it! I am moving out of this godforsaken country, back to Ireland! Wait, they are no good now, money-grubbing scoundrels all. Fine, I can move to St Petersburg. What, they are a rogue nation too? OK, I have a friend in Bogota. What? They are receiving international sanctions due to drug trafficking? No worries, I have a mate in Sydney. Yet their people are reputedly unpleasant louts. I can’t warrant that. Switzerland? Nazi sympathisers. Thailand? Unstable. Cambodia? Crazed gangs. Africa? A death sentence either from viruses or political instability. Iceland—a volcano that could blow at any moment, no thank you. How about we continue to fund NASA; then later we could meet on Mars. Hopefully Mars won’t have made any human rights violations by then and we could share a cocktail without wasting time condemning them too when we could be enjoying, I don’t know, each others’ company?

  6. The entire argument of ‘stealing’ tax revenue here stems from the allowance of subtracting foreign taxes paid from the tax burden imposed by the Expatriation tax. If the U.S. simply said ok, we’re going to set the Expatriation tax at a lower rate (e.g. 15%) but disallow any subtractions of foreign taxes paid on those funds, the current idea of ‘losing’ tax revenue would be moot and the IRS would not blink an eye since no matter how much or little Apple paid in taxes outside the tax revenue generated will not change on those expatriated funds.

    1. True, but the effect would be to double-tax the earnings of companies that cannot come up with a scheme to avoid (legally, as opposed to illegal tax evasion) foreign income taxes. Most multinationals simply don’t have the same opportunities as Apple to reduce their overseas income tax payments to a nominal sum.

      The goal for a fair taxation system is to tax all income once, and only once. No government wants to ignore that principle, since it might result in double-taxation of their citizens by foreign states. Your idea would invite other countries to find ways to do exactly that.

      1. I understand the desire is to only be taxed once, but that is the reason we have all these agreements that ‘share’ taxation by creating a ‘pie’ and the involved nations taking a slice. That is what I see as currently creating the situation where friction is being caused over ‘stealing’ taxes. What I proposed would tax once in the country the revenue is made and only taxed once more when it is moved to another country whether it be the home country or a third country. If the move never occurs the funds are only taxed once regardless of where the HQ of the multinational corp may be. Every country the multinational corp does business in is entitled to tax ONLY the revenue generated or funds entering their country. I think that’s totally fair. This would prevent things like tax shelters since moving money will incur the ‘border’ tax of the destination country after being taxed in the country the funds were generated in.

        Taking a portion of Apple as an example, revenues generated in Germany will be taxed there and if Apple chooses to move those funds to Ireland, Ireland will get a portion via their ‘border’ tax. If those funds are then moved later to say the U.S., the U.S. will be able to charge their ‘border’ tax. It would be cheaper for Apple to have moved the funds directly from Germany to the U.S. in that case saving them the tax paid to Ireland.

        In order to minimize the taxes paid, Multinationals will just have to consider seriously where they ‘need’ the money to be rather than finding ways to ‘park’ it somewhere.

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