A “Back Door” to Fiscal Union
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
The Apple Tax is about a lot more than just Apple and the billions of euros in backdated corporation tax it purportedly owes to European governments. It even goes far beyond the question of how — and how much — central authorities should tax recalcitrant multinationals that make billions of dollars in profits on their turf but share few or none of the proceeds.
What is most at stake is the question of who gets to set the fiscal rules in Europe’s foreseeable future. One thing is clear: if Brussels gets its way, it’s not going to be the national government of each member state. And that could be very bad news, at a very bad time, for a number of European economies, in particular Ireland, Luxembourg, and the Netherlands.
“Total Political Crap”
The EU’s Competition Commission slapped Apple with a €13 billion retroactive tax bill. That money is apparently owed to the government of Ireland, its decades-long partner in one of the biggest tax-avoidance schemes of living memory. The Commission argues that the arrangement cooked up between Irish authorities and Apple’s tax lawyers and accountants represented illegal state aid, enabling the U.S. company to get away with paying an effective taxation rate on its European profits as low as 0.005%.
Naturally, Apple does not want to pay the money. Apple’s chief executive, Tim Cook, even went so far as to call the EU ruling as “total political crap”:
They just picked a number from I don’t know where. In the year that the commission says we paid that tax figure, we actually paid $400 million. We believe that makes us the highest taxpayer in Ireland that year.
The government of Ireland doesn’t want the money either, despite the fact that it could certainly do with it: at 128% of GDP, it boasts one of the highest levels of public debt in Europe, which is no mean feat these days. The EU ruling comes at a time of growing concern about the potential fallout from the decision by Ireland’s closest neighbor and second biggest single trading partner, Britain, to leave the EU, which according to some reports is hurting the Irish economy even more than the UK’s.
A “Back Door” to Fiscal Union
Irish Finance Minister Michael Noonan told Irish broadcaster RTE on Monday that: “As far as I am concerned there is no economic basis for this decision.” He added: “They [the European Commission] don’t have responsibility for taxes and they are opening a back door through state aid to influence tax policy in European countries when the European treaties say tax policy is a matter for sovereign governments.”
As a Member State of both the EU and the Eurozone with a “business-friendly” environment that is brimming with local, English-speaking talent, Ireland is an enticing base for global multinationals. Or at least was.
Now that the Commission appears determined to use the popular canard of corporate tax avoidance as justification for expanding its own powers through the homogenization of taxation rules and practices across the 28-member Union — a vital first step toward the long-cherished goal of fiscal union — Ireland’s days as a grudgingly tolerated tax haven on the EU’s periphery are almost certainly numbered.
Despite the fact that both Apple and Ireland have said they will appeal against the EU ruling, it will serve little purpose — at least for Ireland — since the ruling in question has the full support not only of the governments of both Germany and France but also the overwhelming majority of European citizens, who broadly resent the brazen tax avoidance of multinational corporations, both foreign and home-grown, particularly at a time of rising fiscal pressures and so-called austerity. According to sources in Brussels, European governments lose close to €1 trillion each year in tax revenues as a direct result of fiscal dumping and tax fraud.
The Rise of the Global Taxman
No doubt countries like Austria, with its chronically opaque banking system, Luxembourg, whose impressive range of tax-avoidance services was exposed last year in the Lux Leaks scandal, and the Netherlands, a fiscal paradise that is second home — albeit in the form of a mailbox — to 48% of the Fortune 500, will be paying particularly close attention to developments in Ireland.
It’s not just the prying eyes of the EU’s growing army of taxmen and women they need to worry about. As we’ve been warning for over three years, the global trend is toward ever growing cooperation between national and regional tax authorities. Little by little, a global taxation grid is quietly being erected — and all in the name of fighting the evil multinationals that governments have faithfully served for decades, and their devious tax loopholes!
Yet the very same tax information sharing agreements that are already being drawn up by the OECD behind the scenes and which have been embraced by all G-20 nations will also be used to scoop up, store and share information on every individual in every participating country.
In an article last year ominously titled “Why We Need a Global Taxman, Germany’s Finance Minister, Wolfgang Schäuble, was barely able to contain his excitement at such a prospect. Technological advances and global cooperation between more than 100 national governments are making it possible for tax authorities to keep ever closer tabs on the people’s money, he gushed:
Under the Common Reporting Standard, tax authorities receive information from banks and other financial service providers and automatically share it with tax authorities in other countries. In the future, virtually all of the information connected to a bank account will be reported to the tax authorities of the account holder’s country, including the account holder’s name, balance, interest and dividend income, and capital gains.
At a time of unprecedented public debt and ongoing bailouts, both overt and covert, of strategically and systemically important banks and other corporations, it’s hardly any surprise that cash-strapped governments around the world are becoming more proactive, imaginative and cooperative in their fight against tax evasion and the informal economy. But perhaps the European taxpayer should be a little more skeptical about the hidden motives behind the European Commission’s sudden realization that the corporations it has faithfully served for decades should pay a little more tax. By Don Quijones, Raging Bull-Shit.
Trying to tax the Internet? Read… New Leak Confirms: Brussels Has Learnt Nothing from Brexit
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Too bad the Cayman Islands wasn’t in the EU.. All of these corporations get state help wherever they have shops or factories or offices and try as they will to avoid paying for anything.. I can remember 30 years ago or so American industrialists saying they considered themselves to be Internationalists just as they were beginning their wholesale abandonment of the US but they expected the working class to carry the can and take up the gun in their defense.. Just don’t ask them to pay for any of it.
I don’t feel bad for Apple. They could have pulled the same tax scam from Puerto Rico, a US Territory, which is not subject to federal taxation. Now every EU country where they have a presence will want a cut. Too bad.
The problem is not Apple and Tax., It is the idea of an “Income Tax”.That is the corruption and sleaze.
Didn’t maasterlicht provide for sovereign taxation. Or was it just another paper treaty?…PJS
We don’t need no stinking treaty!
Hey Tim enjoy your EU tax. When you lie with dogs you get flees. Also I need a new laptop. It will not be a mac because you have decided to love Hillary.
Who do the Irish Government represent? they`re 250 Billion Euros in the Red and they don`t want $13 Billion from Apple?
I`d like to see Enda Kenny`s Offshore Bank Account. Bet it just got a lot bigger.
There’s the little matter of EU taxpayers financeing Ireland and most of east euro so that they don’t have to tax companies nor population!
Why should pay their welfare and get laught at at the same time? How about they pay their own bills instead of us?
“EU taxpayers financing Ireland ”
Which Ireland? The Irish people first got hit by the Euro – which none of them voted for, and fell – as did most of southern europe – for the ECB’s pump-n-dump scheme to ensnare them into private foreign debt, and then when AIB’s gambling debts came home a stooge forced them to pay for that too.
The EU and ECB’s influence in Ireland has primarily been to turn a country that had nothing into a country that has some stonking debts and is mainly now owned by the ECB and banking sector.
On that basis I think the EU owes Ireland rather a lot more than they are giving it.
The EU owes Ireland, what EU?
The people who profited are not the general EU citizens either. That’s the problem with the whole EU: the profits, fat subsidies and tax exemptions are for the owners/managers/shareholders of multinationals (whatever their official country of origin) and the elites, the losses and real taxes are for ordinary citizens and small business.
I agree that many Irish citizens were hit hard by the crisis but a minority has profited hugely from EU/euro membership and the easy money that goes with it. It’s the same story in most other EU countries :-(
I don’t see this “roaring political approval” here.
We are all wrong sometimes, and Mr Quijones is half wrong this time.
The EU is done for. Finished. Earmarked for the scrap heap of history. But differently from the Soviet nomenklatura, which understood the game was up and simply threw the towel in, the EU nomenklatura suffers from what I call “Hitler in the bunker syndrome”. Pretty self-explanatory.
This tax is a desperate PR attempt to show all those euroskeptic parties and movements popping up like mushrooms after an August thunderstorm the EU is “on their side”. It’s especially intriguing the decision came so close to a hotly contested local election in Germany, which saw Angela Merkel humiliated in her own electoral feud and as calls for the newly elected M5S mayor in Rome to resign already grow in intensity. And this is to say nothing of Mariano Rajoy still being unable to form a very EU-friendly government in Spain.
This single PR decision won’t save the EU. In fact, like Hitler’s failed offensives in the Ardennes and at Budapest, it will only hasten its inevitable demise.
As for the power grab part… when was the last time the EU didn’t try? ;-)
Immigration to homogenize? Destroy/fragment the local cultures so they can’t mount concerted opposition to the bunker mentality eurocrats?
Mcdo polyethnic culture with all the trimmings. Just what Brussels wants.
“the Soviet nomenklatura, which understood the game was up and simply threw the towel in”
The soviet politburo was dominated by Ukrainians, the fall of the soviet union can in fact be viewed as the biggest bloodless coup in history by Russia, as it was Russia’s Gorbachev who started breaking it up so Russia could be free again.
It’s the same as viewing the withdrawal of soviet forces in Afghanistan as a ‘victory’ for the CIA sponsored terrorists there (the beloved mujahideen, as immortalised in 007’s ‘The Living Daylights’ film), whereas it was more a flight home to address events happening there.
History gets much more interesting when you get a chance to see the news from both sides of the wall ;)
So a trillion dollar company brides a desperate and bankrupt country to set up shop with super low tax rates so that it can have easy, tax free, access to the one of the largest markets in the world. Other companies in other countries of said market who do not have such tax benefits would consider that as unfair competition. So they lobby their governments to give them similar goodies and what you end up is a bunch of corporations paying no tax whatsoever. Naw, that’s impossible, can never happen, anywhere, anyhow, anytime. Oh Wait!
I worked 4 months in Luxembourg. That place could never exist on its own merit without the tax dumping strategies employed by is non-present non-resident corporations. It is a heaven for lawyers, tax accountants, and consultant but, but anybody who has to really work for a living has to drive over the border from France, Germany, or Belgium. It is not a real economy. That place could not function by itself. It is not a real economy.
The world will not miss Luxembourg or Jean-Claude Juncker.
Yes, but that’s part of the point of the EU: there are a lot of small countries who are inter-dependent (and even dependent on economic outputs outside Europe). Only the larger countries have diverse enough economies to be somewhat self-sustaining. EU or no EU, this would be the case.
Working in an international location, doing lots of EU business and working with Europeans has been very educational for me. The regular Brits, even ones pretty well off, but that have to work for a living, are pretty happy about Brexit.
The very young and plutocrats around London are the ones not happy. They are 30-50% of the population.
Many EU lovers fail to realise that their president, Jean-Claude Juncker, created Luxembourg’s tax haven from nothing.
The media is so cool in the UK that the same people that foam at the mouth with indignation about corporate tax avoidance actively campaign for an organisation led by a founder member..
Well, someone have to foot the bill for the exotic EU bureaucrats lifestyle after the Brexit.
There’s $20 trillion of corporate cash just sitting in various offshore safe-havens earning 0.05% – US/EU/China will do their utmost to get their pound of flesh. Good hunting.
In spite of the paperwork the money is not sitting idle in Ireland.
Apple hid all the money in Ireland, then had the Irish company “loan” the money back to Silicon Valley. The money ended up in the US, just without paying any US income tax.
“then had the Irish company “loan” the money back to Silicon Valley”
This is the lastest offshore scam used in the UK, one’s parent company in the tax haven ‘loans’ the UK company money at say 10% (e.g. Byron Burgers), and the repayments just neatly cancel out the UK profits.
After all – debt repayment is a legitimate business expense – even when it’s an obvious crook.
Here’s Apple explaining to the US Senate that its “offshore” money isn’t actually offshore, but in the US.
Just because money is registered in an account in one country doesn’t mean it can’t be invested in US bonds, stocks, real estate, or other US assets….
Sorry, but the EU is slowly annihilating itself. What business would continue to do business in the EU with acts of Brussels parasitic desperation. With that level of uncertainty, paranoia and tyranny one would have to be braindead to be a part of that environment.
I agree with you. But in what EU is concerned this may actually fuel the Exit movement.
Tax laws are designed to suit big business
One way or the other Apple is employing people
Governments want employment it’s far cheaper than loosing qualified people ,
Did they pay their correct amount of tax who knows so far it’s not published .its a pity that the EU have entered the arena , There’s a plan behind it any way
Us hammered Vw for 14B fraud so EU hammers Apple for 13,B tit for tat
“One way or the other Apple is employing people”
People who would be far richer if Apple paid its taxes. It’s all very well saying that big corporations are good for employment – but that fact is that they are not, the minimal money goes to the workers whereas the majority goes to the CEO, the board, the shareholding banks and to offshore accounts.
Imagine if the money that just the CEO took was re-distributed to the workforce – it would be a huge resurgence in the middle class and real trickle-down business that generates. And please don’t tell me he works harder than the engineers at Apple.
All big corporations do is concentrate money from the many into the hands of the very few, which is unsustainable and very bad news for the many – which is us, you and me.
Agree, Apple has very little employment in Europe compared against the huge amount of untaxed profits they make here. It is extremely unfair competition (not just Apple of course, but US multinationals in Europe are mostly the worst of them all) compared to the punishing tax rates that small companies have to pay.
We hear the same ’employment’ nonsense in Netherlands about the fiscal paradise regulations that allow multinationals to avoid taxes almost completely. 10% of total world GDP passes through the tiny Netherlands every year, just so that the big corporations don’t have to pay taxes. Which of course means that small business has to pay a lot extra to keep the system going and has an extremely unfair position – no wonder small business and the middle class are dying in Europe.
Our government tells us that this ‘Double Dutch Sandwich’ tax avoidance scheme is good for employment and income tax, but the only employment from this is a couple thousand white collar criminals who shuffle financial paper and produce nothing of value.
You are forgetting one group of holders – the workforces in the US and Europe v-i-v their pension funds! How many major funds are out there that currently *don’t* hold signficant quantities of Apple shares? They may not get money from Apple in this week’s pay cheque, but they will after they turn 65 years old (or 70 or 90 someday no doubt).
This is not a question of “big business” or “the “99%”: try to look at this instead as a question of allowing a state the power to seize privately-held property. If they get away with this, two things will happen: they’ll eventually come after YOUR assets too and the pernicious drop in productivity in Euroland will continue at an even faster pace.
To shrink the size, power and role of governments of all kinds we need more, not less, tax competition.
Apple paid an effective rate on EU sales of .005 percent, i.e, nothing.
Want less tax than that?
“they’ll eventually come after YOUR assets too”
Err.. federal income tax? Forfeiture laws? State tax? Purchase tax? Health insurance?
This has happened since 1913 – before which the IRS didn’t exist (it being setup to guarantee the loans from the FED, despite the mathematical impossibility of ever repaying them).
This power play is just a side show since both national governments and these super-national organizations like the EU are all doing the bidding of the investor class. Control at both the national and international levels is still in the hands of a few — the banksters who do the bidding of the 0.01%. Will the banksters call the shots through the appointed EU, or through their corrupt politicians. And with the revolving door, is there any difference? Clearly not. Which tax avoidance schemes will be allowed? Clearly it will be those that benefit the majority of the investor class. To really understand how bad this has become, try listening to “taxcast” – a monthly podcast. This particular power play is a side show. We need to demand complete transparency in all ownership of property and end these tax scams.
Double taxation for the people, zero taxation for corporations so their CEOs can take home insane alien pay rates.
Someone has to pay for it, politicians believe the citizens gladly will.
and zero taxation for the elites as well of course.
Many EU countries have special tax exemptions, e.g. in Netherlands those with over 20 million or so classify for an SIV which in practice means you pay 0.2% tax instead of 20-60% like normal citizens. Also, the tax offices make special agreements with the elites just like they do with big companies; tax avoidance is no problem at all for a small group.
Many countries have special treatment for certain assets, often RE, so the elites can avoid paying taxes without even breaking any laws.
Even the extremely wealthy Dutch Royal family hides their capital in tax heavens and doesn’t pay any taxes (plus some of them get a huge income every year to fund their palaces and lavish lifestyle, while they have enough money to pay for all that for many centuries …).
Unfortunately, the British alleged elites, who went to uni and have a couple of degrees and a holiday shithole in Europe, who like their cheap nanny and builders from eastern Europe, are trying to force the brits with any brains or common sense back into the eu kleptocracy.
Maybe a whiff of hysteria all around … EU is by itself a tax avoidance scheme with variations per country depending on what form of entertainment you like: restaurants, scenery, fine art, autobahns, etc.
The entire EU governance exists to serve the plutocrats. Oh, they have to pay some modest amount of taxes … a lot less than anyone not named Apple will pay.