On Tuesday, the EU ruled Ireland granted illegal favoritism to Apple and hit the company with a record €13 Billion ($14.5 Billion) penalty.
The charges stem from Ireland’s low tax rate of 12.5% that angers Brussels because it gives Ireland an advantage in attracting business. Adding to the mix, Apple actually paid an effective rate of 1%. Complaints came in from both sides of the Atlantic.
Curiously, the Irish government does not want the penalty, and there was an outburst of anger from the US Congress as well.
The decision amounted to “a transfer of revenue from U.S. taxpayers to the EU,” White House press secretary Josh Earnest said. The Obama administration would fight for “American taxpayers and American businesses overseas when they’re being treated unfairly,” he added
“Apple had helped create and sustain more than 1.5 million jobs across Europe, follows the law and pays all the taxes it owes,” said Apple CEO Tim Cook.
Irish Government Doesn’t Want the Money
Bloomberg explains Why Ireland Doesn’t Want Apple’s $14.5 Billion in Back Taxes.
Apple’s billions in back taxes could cover the entire annual Irish health budget, build about 100,000 homes for the poor or pay off a chunk of the nation’s debt. So why doesn’t the government want the money?
Irish Finance Minister Michael Noonan on Tuesday vowed to fight a European Commission ruling that could force the world’s richest company to pay it at least 13 billion euros ($14.5 billion), more than twice the country’s entire 2015 corporate tax take and equivalent to about $3,000 for every man, woman and child. He drew fire from opposition lawmakers who say Dublin should take the money. For the government, though, the stakes are higher.
The country’s corporate tax regime is a cornerstone of its economic policy, attracting Google Inc. and Facebook Inc. to Dublin. Even when Ireland was forced to seek an international bailout six years ago, it resisted pressure to change how it taxes companies. While the Apple ruling doesn’t directly threaten the 12.5 percent rate, the government has promised to stand by executives it says are helping the economy.
“To do anything else, it would be like eating the seed potatoes,” Noonan told broadcaster RTE on Tuesday, adding a failure to fight the case would hurt future generations.
Apple and Ireland deny any wrongdoing and say no sweetheart deal was ever agreed. The iPhone-maker is one of more than 700 U.S. companies that have units there, employing a combined 140,000 people, according to the American Chamber of Commerce in Ireland.
US Employment in Ireland
US companies employ 140,000 people in Ireland. That’s one heck of a lot of people. And those are high-paying skill jobs.
It happens because Ireland has a lower tax rate than Europe and the US.
The nannycrats in Brussels want no part of Ireland controlling its own fate.
Angry US Reaction
The Financial Times reports Apple Ruling Sparks Angry Reaction in US.
US political leaders reacted with anger on Tuesday to an EU decision to hit Apple with a record-breaking €13bn tax penalty, setting the stage for possible US retribution and highlighting the volatile politics around international corporate tax issues.
The US Treasury expressed disappointment at what it called an “unfair” decision by the European Commission to assess taxes retroactively and warned that it could have wider ramifications. “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,” it said.
Paul Ryan, speaker of the US House of Representatives, issued a statement on Tuesday in which he said: “This decision is awful. Slamming a company with a giant tax bill — years after the fact — sends exactly the wrong message to job creators on both sides of the Atlantic. It’s also in direct violation of many European countries’ treaty obligations. This is precisely the kind of unpredictable and heavy-handed taxation that kills jobs and opportunity.
“Above all, this is yet another reason why we need to fix our tax code. We need more American companies to invest their money and create jobs right here in the United States. Today’s decision should be a spur to action,” he added.
“This is a cheap money grab by the European Commission, targeting US businesses and the US tax base,” said Senator Charles Schumer, the New York Democrat who is in line to preside over the Senate should Democrats seize control from Republicans in November’s election.
“By forcing their member states to retroactively impose taxes on US companies, the EU is unfairly undermining our ability to compete economically in Europe while grabbing tax revenues that should go toward investment here in the United States,” he said. “This is yet another example of why we need to reform the international tax system to ensure these revenues come home.”
Ron Wyden, a Democratic Senator from Oregon, said the EU was venturing outside its own jurisdiction.
“This ruling could set a dangerous precedent that undermines our tax treaties and paints a target on American firms in the eyes of foreign governments,” he said.
In the lead-up to Tuesday’s decision Mr Schumer and other senators have been calling for the US Treasury to explore possible responses to such an EU ruling, including subjecting European companies to double taxation.
Mrs Clinton has proposed charging companies that engage in inversions an exit tax. Mr Trump has called for a lowering of the US corporate tax rate from 39 per cent currently to 15 per cent in order to encourage companies to bring profits home, while also proposing a one-time 10 per cent levy on repatriated profits.
“On the one hand the US wants to be defending US companies overseas and they are going to see this as vindictive, particularly in going after Apple’s profits retroactively. But in the bigger picture the US is taking moves to fight inversions and improve the global system,” said Geoffrey Gertz, a research fellow at the Brookings Institution in Washington.
Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, said the US and EU appeared to be locked in a risky pattern of tit-for-tat corporate fines, citing the recent $15bn settlement with US authorities by Volkswagen and previous crackdowns on BNP Paribas and Société Générale.
“If the next administration doesn’t work out a climbdown from these kinds of humongous fines . . . this can go on and get worse,” he said. “And it’s not going to stop with the US and EU. It is going to move on to China and so on.”
What Should the US Do?
US tax code is really screwed up. It allows corporations to defer taxes on foreign profits held overseas, but not on profits in the US. This encourages monetary flight and human capital flight.
Paul Ryan hit the nail on the head with his statement “Above all, this is yet another reason why we need to fix our tax code.”
Trump called for a lowering of the US corporate tax rate from 39 per cent currently to 15 per cent. That’s a step in the right direction. Zero would be even better. US businesses would not seek tax havens abroad.
Look at the millions of jobs these technology firms create. Why should they pay any tax at all? We should be thankful for them.
What Should Ireland Do?
The Brussels nannycrats have overstepped their bounds. The EU is not a supranational taxing body that gets to decide tax rates for the world.
I advise Ireland to cut its corporate tax rate to 5% and threaten the EU with an “Irexit” if the EU objects.
The fools in Brussels need to wake up. Hitting them in the face with a brick called “Irexit” just might do the trick.
Mike “Mish” Shedlock