Apple has been told it will not have to pay Ireland €13bn (£11.6bn) in back taxes after winning an appeal at the European Union’s second-highest court.
It overturns a 2016 ruling which found the tech giant had been given illegal tax breaks by Dublin.
The EU’s General Court said it had annulled that decision because there was not enough evidence to show Apple broke EU competition rules.
The European Commission will more than likely appeal the decision, bringing the case to the European Court of Justice, the EU’s supreme court. This case will drag on for a few more years.
It is a “letter of the law vs intent of the law issue”.
Of course the companies will pay accountants and lawyers a billion Euros to avoid paying much more in taxes. Expecting anything else would be a delusion. On the other hand governments will always have less resources and manpower to go after them. They will also set a fixed set of rules, which will be taken apart by those said accountants.
Hence, the good solution is having a simple set of rules across the globe. At least among the biggest economies. The company would then no longer be able to shop around for rates.
The Irish government sided with Apple on this. They don’t want the money. Ireland operates an asymmetric tax policy – tax corporate low and individuals highly. It’s their unique competitive advantage as a country. They are not borrowing in excess to do this or depriving their citizens of benefits, so it’s real economic efficiency. If an efficient country can charge less and give a better service to corporates then it should win. This will result a higher standard of effectiveness overall. Regulation will only cause lawyers to win. It will also cause less production and lower standards of living.
Iapx432,
I agree that the Irish government employs an asymetric tax policy that gives multinational corporations major tax relief. However I have to disagree with you about the policy not hurting Irish citizens to say nothing of the world economy at large. What always happens when governments decide to grant huge corporations tax subsidies is that the corporations profit at the expense of state debt which is ultimately burdened by those who do pay their taxes. The effect is so pronounced in ireland that it skews the country’s balance sheets affecting it’s ability to pay back their national debt.
https://commodity.com/debt-clock/ireland/
It happens in the US as well when corporations go fishing for states to give them public tax subsidies, which all too often results in billions in untaxed profits.
https://www.washingtonpost.com/us-policy/2019/02/16/amazon-paid-no-federal-taxes-billion-profits-last-year/
If all these billionare & trillionare companies payed their fair share in taxes, it would make a huge dent in national debt. We’re looking at a handful of companies racing to two trillion dollars of net worth in part thanks to tax schemes that allow their income to go untaxed. It’s always the wealthiest corporations that get off the hook for paying taxes. It’s not just unfair, it’s catastrophic to country and state balance sheets. Who do you think covers their share? The rest of us of course. In the US at the federal level we’re left paying $378 billion/yr on interest costs alone.
https://www.thebalance.com/interest-on-the-national-debt-4119024
Obviously the corporate accountants are very clever and will do everything they can to avoid paying taxes. If they can exploit lapses in jurisdictional in rules they will, but make no mistake their gains do in fact cost the rest of society dearly.
Alfman,
Even though I would want simpler and uniform rules, I am a bit conflicted.
Take Ireland, which is a small country, or a Small State, USA. If taxes are exactly the same, they would be unable to attract many corporations to come there and jump start their economies.
They might take zero or sometimes negative in corporate taxes. But that does not mean they do not collect any taxes.
First, there would still be a token amount employed. Apple for example has 6,000 listed on their web site:
https://www.apple.com/ie/job-creation/
Those jobs bring payroll taxes, sales taxes, and property taxes for the buildings they work from. Overall the economic impact is almost always positive for that small state/country. There are also spillover effects, like the baristas, tutors, landscapers those employees will themselves pay for.
So some wiggle room for lower taxes to be used as an economic growth tool should be there. But assigning all EU sales into Ireland might not have been the best way to do it (to say the least).
sukru,
That’s part of the problem though, they have not attracted the corporations there materially, only superficially. It’s like the corporations that register in the Cayman Islands using a tiny office with no full time employees and funnel billions of dollars through it as a tax haven to reduce/eliminate their tax liability.
Regarding states, you’re right. It’s very common for huge corporations to seek preferential tax treatment by starting a bidding war between states to see who will grant them more tax subsidies.
https://www.reuters.com/article/us-amazon-com-headquarters-idUSKBN1CO1IP
That’s often the excuse used to justify the perks, but often times the promised jobs do not materialize and/or they come about by displacing jobs away from other local companies. Often times they actually don’t pay local taxes. Furthermore unlike regional businesses, multinational corporations often end up shipping profits away resulting in a net loss of cash flow.
https://www.techrepublic.com/article/why-data-centers-fail-to-bring-new-jobs-to-small-towns/
While this was about data centers, it’s often true of other large corporations that move into communities as well. Look at walmart, when it moves in it displaces a ton of the local stores killing the local economy.
I don’t strictly object to all business incentives, however it really pisses me off when they’re discriminatory in favor of billion dollar companies and not available to the local businesses. They need to be sustainable and it’s completely unethical to give multibillion dollar corporations privileges that aren’t afforded to the local businesses. Any tax terms offered to googles and apples of the world should be offered to all other businesses as well. If they cannot be, then they are clearly not sustainable and as such should not be considered in order to bribe a corporation to open a new branch.
Alfman,
Like everything else in life, there is a lot of possible nuance in these.
Apple employing 6,000 people is a considerable amount. The Irish government is doing this cleverly, and overall IT sector contributes greatly to Ireland:
https://en.wikipedia.org/wiki/Economy_of_the_Republic_of_Ireland#Information_and_communications_technology . I don’t think they would be able to attract that much talent without those tax incentives.
Of course some locales will be convinced by a single desk and an accountant working there. That is the absolute bottom. Actually, scratch that. You can just rent a bank account in Caymans and that I think should not be legal in the first place.
Data centers are a special case. Their main cost is power. Electricity costs more than the building, staff, or even the computers hosted inside. If you can also skip the A/C, that would be a great bonus. So, if the power company is local, they will spend the money locally. If is is just part of a regional network, the city will probably not see a dime.
Walmart is a special case too. I actually like them giving a kick in the n–s to local shops. Most of them do not offer more than minimum wage to their employees, and health insurance is a very far away luxury. Walmart offers (slightly) better wages, an okay insurance (covering dental and vision too), and an actual career path:
https://corporate.walmart.com/our-story/working-at-walmart
“More than 75% of our salaried store management teams started as hourly associates…. Store managers, on average, earn $175,000 annually and manage and help mentor 300 associates.”
(Walmart is usually terrible to their suppliers. That is their main target for skimping).
sukru,
Yeah, but there are many apple stores in Ireland and a lot of those jobs would be there regardless of using ireland as a tax haven. Also, not all the jobs are that great.
https://www.businessinsider.com/apple-store-facts-2012-6?op=1
It’s an older article, and sure, some jobs may be better at a corporate office, but even using the 6k figure without question still doesn’t make economic sense as the basis for dismissing ~€13B in taxes so far. That’s ~€2.2M per job.
Now maybe Ireland doesn’t care that much about taxing income that was never actually earned in Ireland in the first place. However at the macroeconomic level this tax dodging scheme clearly robs the world of billions in unpaid taxes and that’s why the EU was involved. Obviously it’s not just apple, when you start adding up all the corporations and tax subsidies, etc, it’s very clear that we have a huge macroeconomic problem leaving public tax payers on the hook for it. Companies like apple don’t need public hand-outs, why the f*ck are governments giving them any? It’s intolerable, rather than subsidizing trillion dollar corporations, that money should be paying down debts. Allowed to stand as it, the current policy is the very opposite of robin hood: take from the public and give to the wealthy… it pisses me off that we let them get away with it. Not much I can do about it unfortunately… middle class businesses like mine pay higher tax rates than apple, which is bullshit.
Alfman,
I just checked and realized I do actually hold some APPL stock. So it might be best if I speak in abstracts… Oops…
I understand that you do not like companies finding ways to pay less taxes, and find the overall distribution not fair. I would agree to that with some reservations.
Personally I would use all legal exemptions I could find to pay the minimum tax possible, so would do every other sane person. Even if you were not to pay taxes, you would want to optimize the entitlement benefits in order to get the maximum out of the state coffers.
Companies would do the same, and have actually more means, like “shopping around”, or shifting things thru time.
But in practice all this efforts costs me personally a lot of time, and the companies a lot of money to optimize. That is why I would prefer to have a simpler system, and maybe a new agreement.
Things can be shifted a bit around. Overall we cannot have 0% tax, nor 100%. I read several sources citing 20-30% of GDP to be a good number, and this can be discussed further. And of course not everyone can pay the same rate. A poor person barely paying rent and a rich person having significant cushion would not be the same.
But as long as we have these complicated set of rules, and the companies have billions at state, the unproductive fight will go on.
sukru,
Well, obviously I get why corporations do it, but the point is that the big corporations shouldn’t get any privileges whatsoever over everyone else. Fair policy must give all companies the same benefits. We have to blame the politicians that give unfair favors to the wealthy corporations. Politicians are supposed to represent voters, yet many make it their life’s work to represent the wealthy because it opens more doors for themselves and corporations are more than happy to provide the incentives. This is why things are the way they are. I’d like to see corporations explicitly and completely taken out of politics and government policy-making, but I’m well aware it’s just wishful thinking. 🙁
Sure a simpler system would be great, and crucially less loopholes and no favoritism at all! A person of average intelligence and education should be able to unambiguously understand all of the tax code. What we have now is insanity. The republicans actually campaigned on simplifying the tax code, which is a popular selling point, but of course it was all lies and they didn’t deliver. Instead of simplifying their tax code the doubled down of favoritism and gave more tax breaks to passive income owners who don’t work.
The companies with billions love the status quo. Not only is GDP way up over earlier generations, but they’re getting a far bigger slice of the pie. As you point out, they’re not going to give that up volutntarily. I worry that it might take another great depression to flush out the modern day robber barons and the cycle will restart.
“Yeah, but there are many apple stores in Ireland and a lot of those jobs would be there regardless of using ireland as a tax haven. ”
There isn’t a single Apple Store in Ireland and there never will be one. Apple basically uses Ireland as a channelling office for its tax avoidance. Of course, the Irish government is going to side with Apple. If waiving the tax bill leaves Ireland with a €13bn shortfall in its coffers, this is going to be plugged by an increase in the share of the EU tax pot. In other words, non-Irish EU taxpayers are subsidising Apple shareholders so that Ireland can have 6000 on the Apple payroll. All for €13bn. It would be cheaper for the rest of the EU to pay those 6000 the same salaries to stay at home or do whatever they wanted.
weckart,
I found some when I searched for “apple store”, but apparently they were third party stores. Doh.
I agree. This court ruling is awful because it encourages apple and other multinational corporations to continue avoiding paying their fair share of taxes. To what end though? They’ll continue accumulating their billions & trillions with unfair tax avoidance and tax cuts paid for with public debt to subsidize their growth. On average, US households are paying $2,930/yr on interest alone to service our federal public debt, that’s not even enough to pay down principal. An amount that keeps growing because the government keeps cutting taxes on the wealthy. It’s so messed up and yet the corporations just blame the governments for high taxes and decreasing benefits even though the corporations are the underlying cause through their own greed. They convince voters, republicans in particular to vote for corporate interests completely ignoring just how bad of a deal the public is getting when they do.
Alfman,
Foreign direct investment represents a huge net positive (i.e. not debt inducing) portion of Ireland’s economic policy. https://tradingeconomics.com/ireland/foreign-direct-investment#:~:text=Foreign%20Direct%20Investment%20in%20Ireland%20averaged%206640.09%20EUR%20Million%20from,the%20second%20quarter%20of%202018. The massive national debt stems from 2008 bank collapses when the Irish government was forced to guaranteed bonds held by international investors in Irish banks. The EU effectively threatened to bankrupt the country, i.e. not bail it out, if the Irish government refused to bail the holders of Irish bank bonds. The EU loaned money to Ireland to bail out the mostly EU bond holders, thereby massively indebting Ireland. https://www.thejournal.ie/troika-bondholders-1231183-Dec2013/
Agreed, the current debt load could be quickly closed with a corporate tax increase however that would quickly cause an exodus of international investment that would result in a net loss vs gain.
Apple in an interesting case. It is a residual, along with Intel and a few other hold outs, of the 80s electronics boom in Ireland. The vast majority of inward investment these days is in pharma. I believe Ireland is one of the largest pharmaceutical producer nations in the world. https://www.dennybros.com/ireland-a-world-leader-in-pharmaceutical/#:~:text=An%20impressive%2018%20of%20the,since%20first%20arriving%20in%201969. . Those jobs pay extremely well and Ireland has developed a huge competence in the sectors from a human, supply chain and regulatory perspective. That is how Ireland wins.
Finally, I agree that Ireland sails as close as possible to being a tax haven, but does not operate illegally, or at least so far that has not been proven. That annoys a lot of other countries, including the US. The US could destroy the Irish strategy in a heart beat of they switched to the same policy of a global income tax for US corporations as they have for citizens. I think the challenge is that those “US” corporations would change nationality very quickly if taxed at home on international earnings. Arguably Apple is already Chinese.
Iapx432,
Of course, that’s not the problem. The problem is obviously “I’ll scratch your back if you scratch my back” deals that let corporations off on billions in taxes which objectively represents a huge net loss of ridiculous proportions in comparison to a meager kickback. Obviously in this case the huge loss is incurred by the world, whereas the small kickback is benefits a single country. It’s a variation on the tragedy of the commons.
https://www.investopedia.com/terms/t/tragedy-of-the-commons.asp
On the macroeconomic scale the company opens offices they would have done anyways but now they have tax perks worth millions and billions.
Alas this isn’t just apple and it isn’t just ireland. It is in fact a huge problem world-wide that allows huge corporations to keep getting unfair government subsidies everywhere there go. Consider governments giving amazon incentives to building fulfillment centers that it would have needed to build anyways. Not only do smaller competitors not get those same incentives, they have to pay the taxes along with everyone else to subsidize amazon’s expenses.
https://www.syracuse.com/news/2019/10/onondaga-county-approves-71-million-tax-break-for-giant-warehouse-in-clay.html
And recently amazon created a state bidding war for it’s new headquarters and got tax subsidies worth billions. It came out that amazon had its mind set on new york from the get go and the search was nothing more than a ploy to get government to pay it’s building expenses.
https://www.thestreet.com/investing/amazon-to-open-massive-new-warehouse-upstate-new-york
Politicians were absolutely determined to get amazon in at any public cost Thankfully enough taxpayers made enough of a stick about it that amazon (and not the government) pulled out. But it just highlights how corrupt our governments are and their willingness to bend over backwards to subsidize private corporations.
Here’s the thing, there are a lot of different ways these companies be it amazon, apple, microsoft, google, etc can pit governments against one another to get preferential deals that enable them to get subsidies and/or pay less than their fair share in taxes, but we shouldn’t let them get away with it. It The commonality of all these schemes is that corporations get to milk public funds for private gains and the harm is that it creates systemic public debt we all pay for years to come.
Alfman,
Your points are well made. I was simply correcting some errors on the specific Irish situation. The problems you outline are irrefutable. The solution is a difficult challenge. There are a few fundamental root causes that aid this undesirable situation. If you ban the root causes you loose a lot of other benefits. If you ban the symptom of the root it cause will simply cause another similar issue to arise and you have a whack-a-mole.. These root causes are:
– Scale is an advantage.
– Nations are sovereign
– Investors are greedy
– The enemy is as clever as you are and has the same information
– Democracy creates less powerful leaders than coups / invasion
– Politicians can only be fired periodically, people forget, politicians lie and the media distorts.
– Humans live for challenge / challenge is necessary for healthy humans, so they see problems no matter how many solutions you deploy
– Humans don’t have the resources to observe actual reality so they fabricate about 90% based on 10% observations (exaggeration close up but totally understated for faraway in proximity or time.)
– Big companies have bigger influence and make bigger donations
Of all the above the two I would address are:
– Limit scale with a global anti-trust style body. The largest company should not be bigger then the smallest country (or similar). Identify the point of diminishing returns on scale and cap it. In fact there is a theory that over 150 people becomes less manageable and needs to be divided. That’s an extreme, but would be a beautify society. Most companies were the most fun at that point in their growth IMO.
– Ban political donations globally. Make a club that countries are excluded from if their politicians are bought. Maybe require a watchdog body with oath taking zealots who have the power to police politicians and mis-representation and ban them from office for life.
That’s all I got. I think it would take a global revolution, or maybe a new generational hero. Global non military power based politics is possible now for the first time in history. Look at how BLM spread with enthusiasm to countries with no such issues. What if that was a political / societal meme. Imagine a crypto coin that values fairness vs resources. Fair people, organizations and countries get rich. I’ve tried to invent that but gave up. Anyway – could be interesting times ahead.
Short of the forceful revolution that you mentioned, it’s pretty clear to me that this sort of government favoritism and public assistance for big multinational corps will continue. I’m afraid that dominant corporations will just get more powerful as a result. To what end though? I think we’re going to see a repeat of the robber baron era. We’re just not putting the kinds of people into office that would stop this momentum.