The problem is that if those countries raise their taxes companies will just find other tax havens. I think that's why they are trying to find a solution that will work no matter where someone is technically headquartered
You cannot move latency sensitive infrastructure easily if at all. (Most of networking infrastructure including cloud services.) At least once laws relating revenue (not income) at location to tax at location committee into play.
Otherwise everyone would already operate out of Christmas Islands etc.
The EU very skillfully and intentionally crafted the current Dutch Sandwich style scheme by essentially legislating tax heavens in various EU and quasi EU territories (the EU outermost territories make it a very fun map to look at).
The thought behind it was to both attract large companies to pay tax in the EU and allow EU multinationals to remain competitive without having to go somewhere else.
But a lot has changed the EU became less and less competitive and it didn’t really manage to bootstrap any new giants and lost a lot of its former ones.
The plan also did not account for companies like Google, Microsoft and Apple to exist with their market cap nor that companies would love nothing more than to sit on piles of cash that amount to the entire GDP of Europe when those laws were legislated.
Now with US companies actually repatriating cash the EU is basically looking for a new way to get some of that money back and more.
Ireland's corporate tax rate is 12.5% which is in the lower half of the table of EU rates but that's no basis to brand it a "tax haven".
People get riled up because of an exclusively American twist to their corporate tax rule which allows American companies to defer paying US corporate tax on foreign earnings until the money is "repatriated". This is why you never see UK, German, Japanese, etc. companies use Ireland as a tax "haven".
Ireland follows international law in taxing multinationals on the profits generated in Ireland. When you hear a claim along the lines of "Apple only pays 2% on its revenues in Ireland", it's because the vast majority of the profit is taxable in the US not in Ireland but payment is deferred because of this US tax loophole. Just because the cash hasn't been handed over to Uncle Sam, doesn't mean it isn't due.
It's perfectly understandable that the US government is unhappy at this attempt by a foreign government to grab corporate tax which by all international standards belongs to the US treasury. If the EU (and I'm a proud European) wants a share of digital tax, then they should grow their own profitable tech companies to tax instead of selectively eyeing up US tech companies. The US doesn't get to impose corporate tax on German car makers or French wine producers - nor should the EU get to impose a corporate tax on US tech companies.
"When you hear a claim along the lines of "Apple only pays 2% on its revenues in Ireland", it's because the vast majority of the profit is taxable in the US not in Ireland"
No, this is not the reason. They pay an incredible low tax rate for all EU profit because of special illegal deals.
That’s not a fair comparison. You don’t pay corporate tax based on a percentage of turnover so your rate has nothing to do with corporate tax rates. They pay Irish corporate tax on profits generated by their operations in Ireland which are understandably a tiny fraction of their sales in Europe. The rest is taxable in the US and in fact Apple have recently started repatriating foreign profits to the US and are paying US corporate tax on them.
First, they shift all profit to Ireland as "licensing costs" for intellectual property.
Next:
"Ordinarily, those profits would be taxed in Ireland at the relatively low rate of 12.5 percent but — thanks to an agreement between Apple and Ireland — the vast majority of profits in Ireland were attributed to a "head office" not located in any country and therefore not subject to taxes in Ireland or anywhere."
https://www.cnbc.com/2016/08/30/how-apples-irish-subsidiarie...
You’re contradicting yourself - they cannot simultaneously shift all profits to Ireland and to a non-Irish head office. They split the profits on their international sales channeled through Ireland between both. The non-Irish profits are taxable by the US which is why the US government is fighting the EU over this as they rightly (in my opinion) see it as a money grab.
No he is not contradicting himself, and yes they can do both of those and spirit away the entirety of their EU profits into a caribbean island with minimal taxation. Read up on the double irish dutch sandwich tax strategy.
You’re implying that by moving international profits to a Caribbean country means Apple has avoided corporate tax? Like laundering money?
This is not the case - they park their international profits in the Caribbean because US tax code allows them to keep profits offshore and only pay tax when they bring the profits onshore.
If Ireland was facilitating corporate tax avoidance by an American country, why is the US supporting Ireland in the Apple case in the ECJ?
Does this not suggest that there is more complexity to this situations than the hyperbolic headlines?
On car makers or wine producers the US can impose import duties i.e. 25% on light trucks. There is no equivalent to import duties for online businesses, hence this tax plan.
Sure every country can just impose duties on imports. But it's an impoverishing move for the planet. The last time every country believed this was a good idea was in the 1930s and it lead to economic devestation and arguably contributed to WW2.
I think a major point of contention is still if the Irish made special accommodations for Apple. The European Commission claims so, and it doesn't seem a far-fetched accusation [1]. The Irish government still energetically denies it [2].
it makes it obvious who will actually pay the tax - the consumers of the products
I'm not sure you understand how taxation works. Tax is always paid by the consumer, one way or the other. If the Government would show up on your doorstep one day and demand, in a single payment, all the money they suck out of you over the course of a year - directly or indirectly - as a lump sum, there would be a swift, brutal and extremely violent revolution.
I am not sure of the exact percentage, but I suspect that about 60 to 70% of our money eventually ends up with the Government. On top of that, our pension funds are being raided and drained, social services are in rapid and consistent decline since the 70's - not just direct social security, but also healthcare, education, safety and security, etc. Where does the money go? I look around, and pretty much the only place I see real, serious money flow into instead of out is war, or distracting people from all the money that is going into war.
"Does the number of warships we have, and are building, really put America at risk, when the U.S. battle fleet is larger than the next 13 navies combined — 11 of which are our partners and allies?
Is it a dire threat that by 2020, the United States will have only 20 times more advanced stealth fighters than China?"
We are all being played, and it is a game that has been played since the first caveman picked up a rock and brained the guy next to him for a better spot at the watering hole.
All taxes are paid by the consumer of the products, always. This is trying to fix the gap in taxes companies have to pay. Why does Amazon pay less taxes than a 3-person book shop? Do you deem that appropriate?
As far as I can tell the corporate tax in Ireland the 2nd lowest in the EU, with only Bulgaria being lower. Calling that "in the lower half" is reaching a bit, isn't it?
It may not be that bad for Ireland. Ireland had stipulations in bringing a certain amount of operations(ie jobs) into the country to get their favorable tax rate. If the tax benefits are cut back, these businesses may decide it is worth while to keep operations ongoing in Ireland even without the favorable tax regime. Only time will tell on that front if Google et al will remain there.
There is no "favourable tax rate" in Ireland - around 1990 or so, the EU ruled against selective favourable tax rates. Before that, Ireland used to have a 10% rate for exporting (largely foreign) companies and 25% for non-exporting companies. As a result of the ruling, a single 12.5% rate was introduced. It's been like that since.
Eh no to the 0.1%. But I have to concede that the power of shocking but nonsense headline numbers is hard to argue against given how I'm burning through Karma here.
The 0.1% is a number concocted by treating the value of European retail sales as a numerator and the Irish corporation tax as a denominator. The problem is that the dimensions in this division are not-compatible. By the same calculation Walmart only paid 1.2% corporate tax in the US in 2014 (corporate tax paid / total revenue). In actual fact, Walmart paid an effective rate of over 30% because corporate tax is calculate on profits - not on revenue.
derriz, the ~0.005% taxes is not on revenue but on EU profits. How can you keep repeating your same mistake and keep burning through your karma?
"After an investigation, the EC determined that Apple, in accordance with the tax agreement with Ireland, had effectively paid annual taxes of 1.0% on its European profits in 2003 and ~0.005% in 2014."
-marketrealist
https://marketrealist.com/2018/01/eu-demanding-15-billion-un...
JanSt it seems we are talking across each other so this will probably be my last post on the subject.
The EC's determination is being challenged in court on the very basis that Vestager completely misunderstood or deliberately miscalculated what was "EU" profit.
She basically claimed that Apple USA's intellectual property and management contributed nothing in generating profits on Apple sales in the EU. This is clear nonsense - without Apple USA, there would be zero "Apple" profits in the EU.
Ask yourself a simple question; when Apple sells an iphone in Europe, say for say 600EUR excluding VAT or sales tax, how much of that profit "belongs" to the US operation and how much "belongs" to the European distribution center which happens to be based in Ireland?
Vesteger's claim is that ALL OF IT belongs in Ireland. This claim will not last 10 minutes in front of the ECJ judges.
The vast majority of it - according to decades of international tax case law - belongs to the Apple USA as they invented and developed the product. The product isn't even manufactured in Ireland.
As a result of transfer pricing, the Irish distribution has very little profit to declare and so pays very little corporation tax.
But this does NOT mean that Apple has avoided tax. They park their US profit in a Carribean bank account waiting for an opportune moment to repatriate it and when they do they pay corporate tax on it. The ironic aspect of this thing is that the US has the highest effective corporate tax rates in the OECD and so Apple would be far better off shifting as much of the profit as they can to Ireland. But they cannot because of international norm on transfer pricing.
I'm not sure what you mean by that. As far as I'm aware the no law has been passed around this yet, the proposed law from the other day was a flat 3% tax on any revenue made in the EU (which includes Ireland and Luxembourg).
Sorry, I understand that this is most likely just figurative, but it very much gives impression that you haven't looked at the European map for a while.
"The most restricted meaning of continent is that of a continuous[5] area of land or mainland, with the coastline and any land boundaries forming the edge of the continent. In this sense the term continental Europe (sometimes referred to in Britain as "the Continent") is used to refer to mainland Europe, excluding islands such as Great Britain"
"... that push has prompted complaints from American tech giants, which argue that they are being unfairly singled out by Brussels. European officials strongly deny those claims..."
After so many targeted requirements, restrictions, investigations, fines, and taxes no one's really buying that denial.
It's tariff by other name, which lends credence to Trump's rhetoric about how we haven't been treated fairly by our so called allies.
EU governance and enforcement lends itself to be hijacked by the bloc's most powerful members (france and germany, in this particular case the french) and use them as a cudgel against perceived business threats.
No it's not. Amazon pays less taxes on books sold than any bricks-and-mortar store in countries like Germany. They abuse the broken tax system and force smaller players that can't afford those structures (or get an illegal special Ireland tax treatment like Apple) out of business because they can't compete against massive scale combined with lower taxes. The EU now tries to fix the system because those companies keep evading all other measures. The EU population and local businesses do not accept that damaging behavior anymore. You want to make profit in our countries? Don't abuse the system or it will be fixed to be fair again.
If you are going to benefit from the EU's consolidated market you can't complain about the benefits companies are extracting from that same arrangement.
Not to mention that taxing specific companies that happen to come from the same country while the keeping the tax rules unchanged for the rest of the economy isn't fair or free trade and would justifiably require retaliation.
Ireland agreed to a special Apple tax treatment so that Apple pays practically no taxes. Special deals for single companies are illegal under EU law. You want access to the EU market? Play by the rules.
The tax law is also not applicable only to US companies but to all companies.
This is like saying all law breaking mafia members that corrupted a member state are coming from the same country and putting them behind bars is not fair because the EU is a consolidated market and if you want to profit from it you have to agree that the mafia extracts value from the arrangement and leaving the rules unchanged for the rest of the non-mafia economy is not fair or free trade.
The commisioner has argued that Ireland agreed to a special deal for Apple. Ireland and Apple strongly deny that there was any favourable tax deal offered. The ECJ will decide the case and unless the EU wants to undermine the entire system of transfer pricing which is the basis for international trade, they will side with Ireland and Apple.
The EC ruled the tax deal illegal and forced Ireland to collect $13bn which Ireland denied to do. The EC thus put Ireland to the ECJ and started implementing alternative tax rules, with the 3% revenue tax being the result. Paying 0.005% taxes by evading the system? The system will be changed.
"The ECJ will decide the case and unless the EU wants to undermine the entire system of transfer pricing which is the basis for international trade, they will side with Ireland and Apple."
Transfer of profit to the lowest tax destination is not the basis for international trade. Evading taxes will result in tax laws adapting.
This is simply factually incorrect. Ireland and Apple lodged the appeal to the ECJ against the ruling in November 2016. Ireland was forced to collect the 13B pending the appeal in December 2017.
The US is not the lowest tax destination - in fact it has a relatively high corporate tax rate. Apple is making their international profits subject to US corporate tax which is why the US is on the side of Ireland and Apple in the appeal.
Sorry, but you completely misunderstand the situation. This is not about moving profit to the US and the US is not the tax haven I'm talking about. Get your USA out of your head and just accept that they don't pay the taxes they are obliged to pay in the EU by evading them.
Putting "sorry" at the start of a comment accusing me of misunderstand the situation doesn't really help here. I've contradicted your claimed sequence of events and of course I googled before writing the post to confirm my memory of the timeline of the EC ruling and the ECJ involvement.
There is no corporate tax evasion here and that is confirmed by reports like this one[1] which makes it clear that offshore Apple (and other US corporation) profits are clearly liable for US corporate tax. The fact that they can defer paying their US corporate tax is due to a quirk of the US tax system and nothing more.
The 3% is a proposed duty/tarif which has nothing to do with how Apple's profits are and were taxed. This is a tax on revenue/sales/imports not on company profits.
That aside: Ireland has a lower corporate tax rate than say france, so for example a soap company based in ireland doing business in france pays the irish corporate tax rate, it's not illegal and they're not part of the "mafia", now the EU is saying that soap companies will have to pay 3% tax on soap sold in france (in addition to VAT) further still they have no problem with non soap companies and that it's a coincidence that most soap companies affected come from the same country.
Yeah except Apple does not pay the 12.5% Ireland rate but 0.005% because of a system of tax evasion. How could anyone deny that this system must be changed?
