EU against Apple (or generous effective tax rates)
Apple is only the most recent target for the E.U., which has also gone after Starbucks in the Netherlands and Fiat in Luxembourg. But the Apple case takes the fight over the tax “optimization” to a new level. For starters, it has opened a deeper rift in U.S.-E.U. economic relations. They weren’t so great to begin with. (The U.S. Treasury Department has asked the E.U. to back down on the Apple case, and there are threats of congressional tax retaliation against European firms in the U.S. if it goes ahead.) While it’s clear that the U.S. wants some of the money Apple is keeping abroad and is worried that the E.U. might get to it first, that’s a tricky argument for American authorities to make.
... Apple’s tax bill is just the beginning of a very big fight between the world’s richest companies and its governments. But how the battle lines will be drawn is likely to be as confusing a problem as the international tax system itself.
In a sharp response, the US Treasury said the “commission’s actions could threaten to undermine foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the EU”. EU officials played down the prospects of retaliation against European companies.
The huge bill for back taxes — to which interest must be added — is at the extreme end of expectations and came with an open invitation to European tax collectors to review Apple’s business in their jurisdictions.
Ms Vestager suggested that tax authorities in other European countries and the US examine how Apple booked sales, profits and royalty payments in light of her findings. Such reviews could lead to increased Apple tax payments in other jurisdictions with higher corporate tax rates than Ireland.
depending on the niceties of the ruling, Apple may be eligible for a U.S. tax credit for any foreign taxes it has to pay. This would mean that Apple would retrospectively be able to claw back a lot of money from the U.S. government and taxpayers.
U.S. authorities are furious, and U.S. senators are threatening retaliation against European countries. However, European authorities see this as an internal European decision about how Ireland (and perhaps, in future actions, other European countries) have been illegally providing state aid to businesses by offering them special tax deals.
In fact, the case is not really about Apple at all – it is about Ireland and other governments, both national and local, that are willing and eager to offer whatever tax breaks and other subsidies are needed to attract corporate investment. That is the very definition of a global “race to the bottom.” and it is a big problem not just for Europe but for the United States and the world. The U.S. government should be standing with Europe on this issue, not against it. ...
... Certainly the U.S. government should be trying to encourage successful companies like Apple, and to advocate for them if they are faced with discriminatory practices abroad. But the Treasury is also responsible for the budget of the U.S. government, which means ensuring that all taxpayers – including U.S. corporations – are paying a reasonable share of tax. Apple’s maneuvers mean not just less tax paid to European governments, but less tax collected by the U.S. government as well.
NPR: I want to ask you about Ireland, Apple and taxes. Why is the U.S. critical of the European Commission billing Apple for billions in taxes to pay Ireland? Aren't they trying to cope with global tax evasion, something which we think is a problem that should be handled?
Lew: We have a shared view that companies should not be able to avoid taxation by shifting profits and by using loopholes in international tax laws. What's not appropriate is for, in the name of state aid, Europe to be rewriting tax law retroactively, reaching into a tax base that properly should be a U.S. tax base, because it's U.S. income, and doing it in a way that I think ultimately will hurt the business environment because it's going to create uncertainty in Europe.
NPR: But in the case of Apple, it sounds odd. It sounds as if the U.S. is saying to Europe, how dare you do something about this, we're busy not doing something about this. It's our job not to do.
Lew: I think that the process of working tax reform through Congress typically takes many years. It's not unusual for it to start in one administration and end in another. What's not appropriate is for Europe to preempt the ability for the U.S. to address that, which is what I've said is a potential outcome of the European action.
Economists call for end of tax havens — FT.com: "Last month, G20 finance ministers and central bank governors gave all tax jurisdictions until July to comply with international standards on transparency, or face “defensive measures” such as taxes on money transferred to their jurisdictions."