Better to go after the facilitators of these tax avoidance schemes rather than those who are legally using them.
Apple's tax arrangements in The Republic of Ireland are about to become the subject of an official European Commission investigation, according to a report by Irish public service broadcaster Raidió Teilifís Éireann (RTE). The report suggests competition commissioner Joaquin Almunia will take to the stage on or after June 11th …
Better to go after the facilitators of these tax avoidance schemes rather than those who are legally using them.
The problem is that even if they get Ireland to change their taxation structure, they have to get all the countries to do so to fix the problem. I'm sure the accountants at Apple, Google, Microsoft, Cisco, and so on have already identified a plan B and possibly plan C and D for any change to the tax laws in any country they operate in.
This would be best addressed by treaty, but it would be hard to get signatories since countries are always trying to get an edge over each other. Ireland probably gets more from the scheme they allow (which requires a few employees be based in Ireland, and probably some sort of tax is paid, even if it is minimal) than they'd get if they didn't offer anything special to enable it.
Just as an example of this, I live in a city with a decent sized suburb. My city had a department store in a mall that was past its best years, but was still viable due to that department store. The suburb offered property tax breaks of $15 million over ten years for them to build a new store and move five miles.
There is an agreement between the Government of Eire and Apple over a Corporation Tax rate. As such it can't be called 'tax avoidance' because the agreement is with the people who make the tax laws for Eire.
The EC are looking at all such agreements. Eire seems to have the most favorable Corporation Tax rate in the EU. The Netherlands and Luxemburg are next in line.
Don't forget you rabid Apple haters that Google, IBM, Microsoft and Adobe (to name just a few) all have similar Corporation Tax agreements with the Government of Eire. So if Eire is told to tear up that agreement with Apple then the same thing may well happen to the other agreements of this type.
luxembourg ... not the place that has Juncker as head for some 18 years, developed into a nice tax haven? Says much about the people behind the EU
The EU is the creator of this problem. It's EU law which states that companies who trade within the EU have to register for taxation in just one location and EU law which allows this.
By the "EU", you mean your government and your MEP.
I do however agree that the framing of the law was rather naive. It reminds me of the days when people thought that users would only try and put address data in an address field.
No I don't. MEPs have no responsibility for writing the legislation. They may amend it in Parliament and return it for reconsideration but they have no legislative powers. So no, I do not mean MEP.
I also do not mean 'my government' - because they did not write this:
The EU Commission is responsible for the legislation which specifies that corporation tax is paid to only one country. It is responsible for deciding the cross-border taxation mechanism.
My understanding is that the EC doesn't appoint itself so our government has a say (as witnessed by David Cameron saying he doesn't like the current nominee for head of the EC).
According to Wikipedia the EC can only propose legislation and legislation can also be requested by MEPs and the Council of Ministers (representatives of our current government).
MEPs can also dismiss the EC if they want to.
So, any law has to come via the EC (possibly the ECs idea or proposed by MEPs or the Council of Ministers) and then agreed by MEPs and the Council of Ministers.
Which means that any EU tax law has been agreed by MEPs we voted for and our government via the Council of Ministers.
I think the term tax avoidence is a misnomer, the money will eventually be moved somewhere where it will be taxed ( or invested ) it is just parked currently in a tax nomans land. When Apple want to use it in the US or elsewhere they will have to pay tax to repatriate it. This shows up on their accounting for the year, so to please shareholders and make their profits look "nicer" they keep the cash at arms length untill required.
That might be okay if the companies involved were 'parking' cash in tax havens in a healthy manner, e.g. still paying tax but deferring some of their income to get a lower rate in the expectation they will have a slow year where they can draw this reserve down. Instead they appear to be gambling that they can lobby/bribe their way into getting a 'tax holiday' or cutting some other sort of deal to repatriate the cash at a minimal rate.
Its really not much of a gamble, the US has itself to blame for this by offering a tax holiday a decade ago. Had it never been offered, there wouldn't be so many companies playing this game, because there would be less hope it will happen again.
If a company with overseas earnings uses them to buy assets overseas (like a manufacturing plant/equipment, or a company) then that money need never be repatriated, and never gets taxed at the full US rate. That's why a lot of people think this leads to offshoring of jobs. If a company has US manufacturing plants and they need more (or to replace old ones) they need to spend US-based money to do so. Thus it is a lot cheaper to build that new plant overseas, because that money has been taxed at a much lower rate.
And the governments go 'money, money, money, money, money, money, money'! We want you to provide jobs but we want your 'money, money, money, money, money, money'. The Eurozone is not collapsing under the weight of private individuals and business but because the greedy little thieves want more 'money, money, money, money, money, money'.
Until our govs become respectable I will side with the legal reduction of being robbed blind by the gov. To be respectable they need to manage spending and stop throwing away our hard earned money. Remember that every tax was brought in to take from the rich. And the people chanting for more tax on the rich dont realise that we are now paying the tax's aimed for the rich.
Tax is and always has been to feed the rich, leaders past and present purely disguise it as being of primary benefit to the mob.
Company A makes £600 million in Country A, but says it has to pay £599 million in royalties to Company A(1) in Luxemburg.
You change the law so that Royalties paid to a company outside of the country , cost 40% of what's paid.
What this does is make paying corporation tax the cheaper option, if they don't like it they can shut up shop, I'm sure there will be local and international companies willing to service that market!
You change the law so that Royalties paid to a company outside of the country , cost 40% of what's paid.
So what about the company B which is legitimately paying royalties to company X for use of their IP?
The problem with tax "loopholes" is that most of them aren't actually loopholes. They are legitimate financial arrangements made for a good reason, which are then exploited in unintended ways.
I would have thought that could be accounted for by limits on the ratio between the cost of the IP and the turnover.
However, I agree in general that a lot of loopholes were put there for legitimate reasons. I think it's actually quite hard to write watertight rules, or at least harder than you'd think.
Sometimes I think it would be better to let the judiciary look at the spirit of the law in these cases. Yes, there are dangers but it seems that there are more if we don't. I think judges can already consider what parliament intended but I don't know how that works with tax law and where the limits are.
It's illegal to tax royalties flowing from one EU corporation to another.
No, really, EU law does say that.
When in the case of Starbucks can coffee beans be legitimately considered as IP?
When in the case of Amazon and Google sales of products or advertising revenues be recognised as revenues in a low corporation tax haven when the products and services are delivered in a higher corporation tax country?
Put simply as it was in the UK Evening Standard earlier this week; successive UK governments have failed to address the issue of growing complexity in the taxation system. This complexity is supporting a business of tax advisory services where the Tax bible has ballooned from 5,000 pages 15 years ago to near 20,000 which in turn drives behaviours of avoidance and evasion by the rich and powerful.
The net effect of which is that for every £1 that is not collected from Corporation Tax or tax efficient high net worth individuals; everybody else pays the price or public services have to be cut.
I also agree that the UK Public sector with its inefficiencies and lack of accountability compounds this issue by wasteful spending and profligate self interest / self service.
what are we to do.......
Ireland is a struggling nation, creaking at the seems under the mountain of debt it has. So the EU wants to close the loophole that made apple et al locate to Ireland. What happens to the 4000 people employed when Apple pull out once it is closed? What happens to the tax paid on the salaries of those 4000 people, and what happens to the small amount of corporation tax they do pay on occasion?
I don't think anyone in the EU has really thought this through fully. If all the big companies located in countries giving them tax breaks suddenly leave there will be mass unemployment, a gaping hole in the economy of that region and it will end up with yet another bailout from a group of countries charging pretty high interest to a country that can't afford the debt it already has.
So they don't pay much tax, but they DO contribute a lot to the job market and the area in which they locate offices. The wages given to employees then contribute further to the economy as they spend the fairly high salary they are paid to work in a top technology firm.
So, my local bookshop shuts down due to competition from company X which uses Ireland to avoid paying taxes where I live.
So we've lost local employment and the contribution to the economy which goes with it. Instead the money flow out of the country, Ireland takes a bit and employs some people but the majority goes to some tax haven or other.
So, if this is done properly company X will either
1. Start to pay tax and have to compete on a level playing field. In which case my local shop may start up again as it can now compete but either way there'll be more contributions. The EU has various schemes to encourage new businesses in areas like Ireland and the extra contributions can go towards that in the short term until Ireland can find something else to replace the lost jobs, if there were any.
2. Company X shuts up shop. In which case people who'd formerly spent money with company X would either spend it on something else which raises local contributions or even something else which Ireland produces.
In all cases I'd rather support the Irish unemployed directly in the hope that new businesses can be started up, rather than via Company X where the majority of the cash disappears via some tax haven or other.
"Ireland is a struggling nation, creaking at the seems under the mountain of debt it has"
Apple is a profitable company creaking at the seams under the mountain of cash it has.
Apple should buy Ireland and wipe out the mountain of debt. By owning Ireland, Apple can pay 100% tax back to itself.
I agree, Cork is a city of about the size of York or La Rochelle with a couple of hundred thousand people.
If Apple and others pulled out basically the city would be facing the 1980s depression all over again when it lost Ford's car manufacturing plant and just sank into a total slump with mass unemployment and mass emigration.
Ireland's economy is recovering at the moment but it's still very fragile. Anything that knocks it back right now could lead to it stumbling and being unable to pay debts which could easily spark major problems for the Eurozone.
There are also all sorts of deals done in other EU regions (mostly remote regions or areas that needed to stimulate economic development). Effective corporation tax in France for example can be very low when you calculate it with incentives. The same applies in the UK and many places.
Does this mean we just start attacking and unpicking all of this and killing the outlying regions of Europe entirely?
Does it mean the EU unpicking the City of London or maybe ripping into the Dutch economy? It would mean the end of Luxembourg entirely!
Maybe we should just all pay French theoretical maximum tax rates?
The reality of jobs being run out of Ireland will just mean they'll probably go entirely outside the EU. Ireland tends to compete with Singapore, etc for inward investment in many areas.
The other reality is that it could destabilise the Irish government entirely if unemployment were to start trending upwards and austerity measures increase again.
The most likely result of that if polling trends follow is that instead of the EU talking to a very pro-European Irish centrist government, they'll be looking at a very left wing nationalist government featuring Sinn Fein and a range of independents and very left wing parties whose main focus would be to default on EU debts.
Unlike most of Europe, Ireland's actually moving left the more pressure that's being put on. There's no risk of a rise of ultra-right politics here like in France but there's a definitely more Eurocritical stance emerging that could easily grow into full blown left-leaning Euroscepticism.
When push comes to shove we have to put dinner on the table, petrol in the car, pay the bills etc and if someone's going to put thousands of jobs at risk, they're going to be facing a major problem.
You can thumb down that comment all you like but this is going to be perceived in Ireland as the EU kicking us when we're down.
If you want Ireland and others to make a major structural tax change that could see multinationals leave the country, you would probably be better to avoid doing it during a deep recession.
Also, I think that this needs to be done in a fair way. Google and Apple are 'sexy' targets for media attention. There are lots of far less trendy companies - banks, car makers, major aerospace companies, big pharma, oil companies, energy companies etc etc all availing of similar tax minimisation strategies in various countries.
Yet all I see is outrage aimed at Apple, Google and Starbucks.
If this is done in an unbalanced way targeting small EU countries or just focused on IT companies, going to cause major imbalances and regional economic turmoil.
There are lots of EU 'national champions' and pet industries that receive huge levels of incentives through tax breaks and through direct and indirect subsidises.
The same applies in many places outside the EU too.
I just think we need to be a little careful before everyone starts pillorying Ireland or any other country.
There are lots of potential issues in the UK on banking, France on state subsidies, Etc etc etc that could equally deserve being put under the microscope...
but I do mind Google, Apple et al skimming 90% off to a tax "firendly" country (most of the money doesn't stay in Ireland) at the expense of jobs in my country.
Nobody wins a race to the bottom with taxation.
..your recovery on deceptive companies was always going to be a fragile foundation to begin with. Your government should have had more foresight than the limited view they have had here. Change of government you need
...that there is a law in Monaco that states that no one can shout the word "TAXMAN" in a Cinema or Theatre in case the ensuing stampede to get away causes the loss of Human life?
...that the UK was against the EU meddling in a sovereign nations affairs. Or does that not apply to taxation?
Like *all* EU countries, they don't mind as long as it's shining the light on someone else's tax loopholes and not their own.
The UK doesn't mind the EU interfering in taxation as long as it's not pointing the spotlight on the City of London's financial services sector. France doesn't mind beating up Ireland, Luxembourg and the Netherlands but dare anyone question their policies on subsidising various 'national champions' over the years and they'll get very upset.
Even Germany, which is currently going around posing as Europe's bastion of righteous economics and fiscal policy looks like it's full of tax loopholes designed for domestic companies.
Take a look at this Deutsche Welle report:
http://www.dw.de/german-companies-avoid-billions-in-taxes/a-16841542 from 28 May 2013 which was looking at figures from the German Institute for Economic Research / Deutsches Institut für Wirtschaftsforschung (DIW) which was showing German companies legally avoiding between €90 and €120 billion a year.
There are several reputable studies showing that France has lower effective corporate tax rates than Ireland, for example. This is quoting a study by PricewaterhouseCoopers (PwC) and the World Bank.
That showed that " France the statutory corporate tax rate is 33.3% while the actual effective tax rate is lower than Ireland’s 12.5% at 8.2%.
Luxembourg has a statutory rate of 22.5% but an effective rate of just 4.1%. Ireland has a famously low statutory corporate tax rate of 12.5% but its effective rate according to the study is 11.9%"
So it's all rather more complex than the press and political hyperbole would have you believe.
All I know is that from an Irish perspective, any move that results in major job losses here will probably result in Irish voters taking a very harsh line on Europe and we have a VERY big weapon - We have to have referenda on any many EU integration issues, so we could quite literally just hold up the whole show.
Basically, my point is : get all your own houses in order before bullying the small country that's trying to get its economy back on track!
It would seem to me that everyone's been cutting tax deals to encourage employment. I can assure you that Ireland doesn't have low corporate tax for the love of Apple. It's because we desperately needed companies to invest here to encourage job growth. The policy is/was to bring in multinationals, stimulate the economy and grow the indigenous economy on the spin off from that. To a large degree, that's actually worked. The recent economic collapse was down to a property / assets bubble, not to a collapse in the Irish underlying economy.
The reason that Ireland's now pulling out of recession and growing again is because it actually had a serious underlying economy. It was just overwhelmed and dwarfed by the scale of a property bubble and a construction sector that grew on top of it and then burst causing huge scale unemployment as 1/3 of the economy vanished
(Note to Australia -- you're doing exactly the same thing! Take a look at Ireland from 2004-2007 for where you're headed! Soaring property prices and costs ≠ a good thing)
Pull Ireland's foreign direct investment base out, and you'll have a cascading collapse that will result in incredibly serious problems.
Pull out the UK's financial services sector loopholes and Britain would be in a total mess.
Tell France it can no longer incentivise investment and you'll find loads of manufacturing would leave and France would be a total mess.
This stuff has to be dealt with very carefully and very slowly and I think just lobbing blame onto peripheral EU countries like this will ultimately spell disaster for Europe.
Also, can we start looking a picture that's broader than two US multinational IT companies? There's more to the global economy than Google and Apple (I hope!)
Dunno why you got down voted.... as you say - happens all over the EU.
Highest paid person at a company I used to work at was the International Tax Manager. There's a reason why he was, as he was saving the company literally millions per year - all legally.
You're quick to assume it's all legal. Unless there is an audit, you cannot be sure.
The truth is no one but individuals actually pay any taxes in reality anyway. Companies or Corporations merely collect the taxes for the government as they all work off of After Tax Profits. So increased taxes on companies merely means higher prices to customers (in fact by a multiplying factor as in order to net the same dollars % wise they must raise prices more than the actual tax amount i.e. you earn $100 net - increase taxes by 25% they must make $133 or 33% more to make same $100).
Customers end up paying 33% higher prices. Apple and every other corporation is doing its customers and shareholders a service by minimizing their tax burden. Corporate taxes are simply how you tax the poorest members of society where they otherwise are "not taxed at all". One more left wing lie about looking out for the little guy when that is exactly who taxing authorities are screwing by any and all business taxes.
I agree with you on that but the problem won't be solved by hitting individual counties.
Some of these companies aren't tax resident anywhere.
I mean Apple might as well be tax resident in the iCloud only paying the iTax.
It can only be resolved at international treaty level and even then you'll have actual tax havens that are way beyond the reach of EU or US law who will just refuse to cooporate.
With globalised companies there's very little preventing them from just playing every country off every other country.
Realistically, you need to come up with a totally different way of calculating tax on corporate income.
Also, you can't really decide what a fair level of tax is. It varies depending on economic philosophy of different countries.
There's huge focus on taxing easy targets though. I'm paying a marginal rate of income tax of 52% in Ireland and VAT (sales tax) of 23%.
Employers also pay various social insurance charges and on top of that I've property tax, tax on interest earned, hefty motor tax on car, carbon tax on all fuels etc etc etc
I agree corporates aren't paying enough but I just disagree on selective plugging of someone else's loopholes while ignoring your own!
Recent legislation means that the UK is well ahead of any other 'developed' country in terms of providing tax-avoiding (and information hiding) structures for international companies. Indeed the City is fast becoming the world's money-laundering tax haven of choice.
..why didnt the EU do this and get back the millions, possibly billions from these horrible companies before putting tax hikes on entire countries..
...don't give them your money, then they can't off-shore any of it. Though it makes life more complicated when nearly everyone you want to buy something from sells it online through one of those big multi-national companies who take their cut off the top (and usually the bottom as well). It means you need to go to the small, local, bricks and mortar store and give them (more) of your limited wealth.
Not sure how this works for companies like Google though, where the only thing you can try and do is not pay them for online advertising of your business, but then you end up with nobody knowing about your business...
(Paris, 'cos the rich get richer)
....on prices of Apple products, and how they explain any change, accepting that in this instance they have applied the law and it is the various states under investigation for possibly cocking up the rules for parochial reasons.
Would they maintain their profit per unit and see the costs go up (any idea how much more per mac this would be?) or just maintain the current price which is at something of a premium over other systems already, with reduced profits. (Yes, I know, different levels of support, function and all that, but for the normal shopper in the street.....)
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