EU commission orders Apple to pay €13bn as back taxes

Seen something interesting in the news or on the intertubes? Discuss it here.

Moderators: Zamfir, Hawknc, Moderators General, Prelates

Mambrino
Posts: 388
Joined: Tue Aug 02, 2011 9:45 pm UTC
Location: No we don't have polar bears. Except in zoos.

EU commission orders Apple to pay €13bn as back taxes

Postby Mambrino » Tue Aug 30, 2016 9:05 pm UTC

BBC: Apple should repay Ireland 13bn euros, European Commission rules

Ireland should recover up to €13bn (£11bn) from Apple in back taxes, the European Commission has ruled.

After a three-year investigation, it has concluded that the US firm's Irish tax benefits are illegal.

The Commission said Ireland enabled the company to pay substantially less than other businesses, in effect paying a corporate tax rate of no more than 1%.

Ireland and Apple both said they disagreed with the record penalty and would appeal against it.

"Member states cannot give tax benefits to selected companies - this is illegal under EU state aid rules," said Commissioner Margrethe Vestager.

"The Commission's investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years," she added.

The standard rate of Irish corporate tax is 12.5%. The Commissions's investigation concluded that Apple had effectively paid 1% tax on its European profits in 2003 and about 0.005% in 2014.


..

The record tax bill should not be a problem for Apple, which made a net profit of $53bn in the 2015 financial year.

..

Last year, the commission told the Netherlands to recover as much as €30m (£25.6m) from Starbucks, while Luxembourg was ordered to claw back a similar amount from Fiat.


Europe's 'unfair' Apple tax ruling sparks US anger

Charles Schumer, one of the highest-ranking Democratic senators, said: "This is a cheap money grab by the European Commission, targeting US businesses and the US tax base. "

"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.


Yeah. I'm sure US tax authorities don't require domestic US firms to pay unpaid taxes. Tell me by which natural right US firms are allowed to illegally circumvent European taxes aided by Ireland if it profits US?

Commission's press release

Commissioner Margrethe Vestager, in charge of competition policy, said: "Member States cannot give tax benefits to selected companies – this is illegal under EU state aid rules. The Commission's investigation concluded that Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years. In fact, this selective treatment allowed Apple to pay an effective corporate tax rate of 1 per cent on its European profits in 2003 down to 0.005 per cent in 2014."

Following an in-depth state aid investigation launched in June 2014, the European Commission has concluded that two tax rulings issued by Ireland to Apple have substantially and artificially lowered the tax paid by Apple in Ireland since 1991. The rulings endorsed a way to establish the taxable profits for two Irish incorporated companies of the Apple group (Apple Sales International and Apple Operations Europe), which did not correspond to economic reality: almost all sales profits recorded by the two companies were internally attributed to a "head office". The Commission's assessment showed that these "head offices" existed only on paper and could not have generated such profits. These profits allocated to the "head offices" were not subject to tax in any country under specific provisions of the Irish tax law, which are no longer in force. As a result of the allocation method endorsed in the tax rulings, Apple only paid an effective corporate tax rate that declined from 1% in 2003 to 0.005% in 2014 on the profits of Apple Sales International.

This selective tax treatment of Apple in Ireland is illegal under EU state aid rules, because it gives Apple a significant advantage over other businesses that are subject to the same national taxation rules. The Commission can order recovery of illegal state aid for a ten-year period preceding the Commission's first request for information in 2013. Ireland must now recover the unpaid taxes in Ireland from Apple for the years 2003 to 2014 of up to €13 billion, plus interest.

In fact, the tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market. This is due to Apple's decision to record all sales in Ireland rather than in the countries where the products were sold. This structure is however outside the remit of EU state aid control. If other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland.


Boldface highlight mine.

elasto
Posts: 3064
Joined: Mon May 10, 2010 1:53 am UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby elasto » Tue Aug 30, 2016 10:30 pm UTC

On the one hand, what Apple was doing was absurd: It was funnelling all European sales through an office in Ireland (that only really existed on paper) and paid 50 Euros tax for every million Euros in profits (not turnover, profits...)

On the other hand, I have sympathy for those that say what Apple did was legal and sanctioned and it's unfair to make retroactive tax demands like that.

On a third hand, Apple has hundreds of billions sat in its 'rainy day fund' and can easily afford the 13Bn Euros in tax it should have paid had Ireland implemented the level playing field that it agreed to as part of its EU treaty obligations.

In practice, what we all think is irrelevant as this will be tied up in appeals for years and we'll be lucky if Apple makes a token payment of a billion Euros or so...
Last edited by elasto on Tue Aug 30, 2016 10:35 pm UTC, edited 1 time in total.

User avatar
sardia
Posts: 5667
Joined: Sat Apr 03, 2010 3:39 am UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby sardia » Tue Aug 30, 2016 10:35 pm UTC

The two big take aways are those dirty Europeans are trying to take our tax dollars.
The second is that if the EU gets away with it, they're gonna crash the Irish economy(which consists of nothing but butter and sanctioned tax evasion).

elasto
Posts: 3064
Joined: Mon May 10, 2010 1:53 am UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby elasto » Tue Aug 30, 2016 10:39 pm UTC

The EU allows countries to have different tax rates. There's nothing stopping Ireland having the lowest corporate rates in the EU.

What they can't do is give one single company a vastly different rate to all others (noone else got a 0.005% tax rate). Ireland isn't the only country to be slapped down in this way. ('Slapped down' being an odd term when you force a country to receive more income...)

And far from crashing Ireland's economy, these back taxes would fund Ireland's health service for an entire year...

User avatar
sardia
Posts: 5667
Joined: Sat Apr 03, 2010 3:39 am UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby sardia » Tue Aug 30, 2016 10:46 pm UTC

elasto wrote:The EU allows countries to have different tax rates. There's nothing stopping Ireland having the lowest corporate rates in the EU.

What they can't do is give one single company a vastly different rate to all others (noone else got a 0.005% tax rate). Ireland isn't the only country to be slapped down in this way. ('Slapped down' being an odd term when you force a country to receive more income...)

And far from crashing Ireland's economy, these back taxes would fund Ireland's health service for an entire year...

Yea, it would fund it THIS year, and the next year, every single company that was there for the tax evasion would abandon them. Why else is Ireland seemingly irrational about more tax revenue?
The big thing that upsets the US is it back dates taxes, which isn't normal, but more importantly, it takes tax dollars that the US could have seized and gives it to the Irish.

elasto
Posts: 3064
Joined: Mon May 10, 2010 1:53 am UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby elasto » Tue Aug 30, 2016 10:51 pm UTC

sardia wrote:Yea, it would fund it THIS year, and the next year, every single company that was there for the tax evasion would abandon them.

Why? The only company that had this special treatment was Apple. All others paid Ireland's standard tax rate. Why would they go?

Where are these companies going to go to anyway? They have to stay in the EU, remember; If they try to funnel profits from European sales outside of Europe they are gonna come deeply unstuck.

The big thing that upsets the US is it back dates taxes, which isn't normal, but more importantly, it takes tax dollars that the US could have seized and gives it to the Irish.

Why are these taxes that the US could have seized? They are profits from sales in Europe and should be taxed in Europe. If the US double-taxes that's a whole other pile of wrong and the US has no moral high ground.

Mambrino
Posts: 388
Joined: Tue Aug 02, 2011 9:45 pm UTC
Location: No we don't have polar bears. Except in zoos.

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Mambrino » Tue Aug 30, 2016 11:27 pm UTC

elasto wrote:On the one hand, what Apple was doing was absurd: It was funnelling all European sales through an office in Ireland (that only really existed on paper) and paid 50 Euros tax for every million Euros in profits (not turnover, profits...)

On the other hand, I have sympathy for those that say what Apple did was legal and sanctioned and it's unfair to make retroactive tax demands like that.

On a third hand, Apple has hundreds of billions sat in its 'rainy day fund' and can easily afford the 13Bn Euros in tax it should have paid had Ireland implemented the level playing field that it agreed to as part of its EU treaty obligations.

In practice, what we all think is irrelevant as this will be tied up in appeals for years and we'll be lucky if Apple makes a token payment of a billion Euros or so...


Well, it was legal under Ireland's "Apple gets special 0.005 % tax rate" law, which, turns out, wasn't actual legal under the EU law. (Or rather, it will be settled in a court, but it does seem rather clear-cut.)

User avatar
Diadem
Posts: 5631
Joined: Wed Jun 11, 2008 11:03 am UTC
Location: The Netherlands

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Diadem » Tue Aug 30, 2016 11:37 pm UTC

The problem is that there is basically a huge race to the bottom where countries try to out-compete each other in offering tax reductions for companies in order to attract them. This is a very bad thing, and if the EU can stop this, that would be awesome.

I don't know the details of this ruling, but special exemptions for specific companies are a bad thing, and it's good to stop them.

I understand that Ireland doesn't want to lose its tax haven status. But I'm kind of wondering what the point of being a tax haven is if your taxes are that low. 50 euros per million of profit? Apple's sales are in the billions, but even then that's pretty negligible. Why bother attracting companies if they pay that little tax?

It's interesting that Ireland 's finance minister is fighting this ruling. Somehow I don't think that's a fight he can keep up for long. Fighting for special tax exemptions for obscenely rich companies to make them pay 10,000x less tax than the average citizen... That's gotta rate somewhere between kicking puppies and hitting babies for popularity among voters.
It's one of those irregular verbs, isn't it? I have an independent mind, you are an eccentric, he is round the twist
- Bernard Woolley in Yes, Prime Minister

User avatar
Vahir
Posts: 451
Joined: Wed Aug 29, 2012 7:20 pm UTC
Location: Ontario, Canada

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Vahir » Tue Aug 30, 2016 11:46 pm UTC

I'd never imagine a country would fight so hard to refuse 13 billion euros.

elasto
Posts: 3064
Joined: Mon May 10, 2010 1:53 am UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby elasto » Wed Aug 31, 2016 12:11 am UTC

Diadem wrote:The problem is that there is basically a huge race to the bottom where countries try to out-compete each other in offering tax reductions for companies in order to attract them. This is a very bad thing, and if the EU can stop this, that would be awesome.

The thing is, they can still do this. As far as I know, there is no minimum tax rate any country must abide by or anything. What they can't do is favour one company over another since that breaks the 'state-aid'/'anti-competition' principle that all countries joining the EU agreed to.

Basically, within a single country, companies are entitled to a level playing field when competing with one another which seems a pretty reasonable principle. Apple must pay the same tax rate other Irish companies do. That's all. The EU is merely enforcing something Ireland agreed to of its own free will.

User avatar
sardia
Posts: 5667
Joined: Sat Apr 03, 2010 3:39 am UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby sardia » Wed Aug 31, 2016 2:00 am UTC

Diadem wrote:The problem is that there is basically a huge race to the bottom where countries try to out-compete each other in offering tax reductions for companies in order to attract them. This is a very bad thing, and if the EU can stop this, that would be awesome.

I don't know the details of this ruling, but special exemptions for specific companies are a bad thing, and it's good to stop them.

I understand that Ireland doesn't want to lose its tax haven status. But I'm kind of wondering what the point of being a tax haven is if your taxes are that low. 50 euros per million of profit? Apple's sales are in the billions, but even then that's pretty negligible. Why bother attracting companies if they pay that little tax?

It's interesting that Ireland 's finance minister is fighting this ruling. Somehow I don't think that's a fight he can keep up for long. Fighting for special tax exemptions for obscenely rich companies to make them pay 10,000x less tax than the average citizen... That's gotta rate somewhere between kicking puppies and hitting babies for popularity among voters.

Say you're a country of 1 person. How much tax revenue would you need? 1 million? 10 million dollars? For a small country, taking in a super power's biggest corporation is a huge windfall, taxes be damned. Ireland doesn't have a economy that can play with the big boys, so it went with tax haven strategy, which allows it to leach off of other countries. The big powers are just too distracted and corrupt to care, but that's slowly changing.
Last edited by sardia on Wed Aug 31, 2016 6:29 am UTC, edited 1 time in total.

User avatar
CorruptUser
Posts: 8518
Joined: Fri Nov 06, 2009 10:12 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby CorruptUser » Wed Aug 31, 2016 6:25 am UTC

Or maybe countries could get smart and require companies to pay tax on profits based on where the goods are sold rather than whichever microstate offers the most trivial tax rate? That is, if 80% of your revenue was made in the US, 80% of your profits were made in the US, even if your books state that all of your profit was the result of a single office in Monaco.

User avatar
sardia
Posts: 5667
Joined: Sat Apr 03, 2010 3:39 am UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby sardia » Wed Aug 31, 2016 6:30 am UTC

CorruptUser wrote:Or maybe countries could get smart and require companies to pay tax on profits based on where the goods are sold rather than whichever microstate offers the most trivial tax rate? That is, if 80% of your revenue was made in the US, 80% of your profits were made in the US, even if your books state that all of your profit was the result of a single office in Monaco.
if I had a corporation in Ireland, which owns all the patents, and then subsidiaries which pay licensing fees to the corporation in Ireland, aren't my profits in Ireland? Did you solve the problem?
Aren't there compliance reasons against this? Or is it like Dvorak keyboards, a good idea, but buried by bureaucratic inertia?

User avatar
Diadem
Posts: 5631
Joined: Wed Jun 11, 2008 11:03 am UTC
Location: The Netherlands

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Diadem » Wed Aug 31, 2016 8:46 am UTC

elasto wrote:
Diadem wrote:The problem is that there is basically a huge race to the bottom where countries try to out-compete each other in offering tax reductions for companies in order to attract them. This is a very bad thing, and if the EU can stop this, that would be awesome.

The thing is, they can still do this. As far as I know, there is no minimum tax rate any country must abide by or anything. What they can't do is favour one company over another since that breaks the 'state-aid'/'anti-competition' principle that all countries joining the EU agreed to.

Yeah banning special exemptions for individual companies is not sufficient to stop the race to the bottom. But it's a good start.

If all companies have to pay the same tax rate, then it's already a lot less attractive to lower taxes too much. Because local companies will also be paying that lower tax rate, reducing revenue. At some point the extra profit from having international companies move to your country won't weigh up to the lost profit of the companies that are already there paying less taxes. You can still play around with your tax rate to attract foreign companies, especially if you are a small country, but it's not as effective.

sardia wrote:Say you're a country of 1 person. How much tax revenue would you need?

Ireland is a small country, but not that small. With 5 million people they still have a significant domestic market. If Apple was really paying only 50 euros per million of profit, how much were they paying in total? They made $53 billion profit worldwide in 2015. So maybe €10 billion in the EU? So they paid what, half a million in taxes? That's pocket change for a country of Ireland's size. Drawing up all the paperwork to give Apple it's special status probably cost more.

I understand offering special deals to foreign companies to attract them. Because free money is free money. But there's gotta be a point where it just isn't worth it anymore, and it seems to me that Apple is way past that point.
It's one of those irregular verbs, isn't it? I have an independent mind, you are an eccentric, he is round the twist
- Bernard Woolley in Yes, Prime Minister

Eowiel
Posts: 163
Joined: Sat Jun 12, 2010 5:57 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Eowiel » Wed Aug 31, 2016 9:31 am UTC

Ireland is a small country, but not that small. With 5 million people they still have a significant domestic market. If Apple was really paying only 50 euros per million of profit, how much were they paying in total? They made $53 billion profit worldwide in 2015. So maybe €10 billion in the EU? So they paid what, half a million in taxes? That's pocket change for a country of Ireland's size. Drawing up all the paperwork to give Apple it's special status probably cost more.

I understand offering special deals to foreign companies to attract them. Because free money is free money. But there's gotta be a point where it just isn't worth it anymore, and it seems to me that Apple is way past that point.


There are people working for Apple in Ireland, these employees receive a wage and pay taxes on that. So the income Ireland gets from Apple being there is greater than just the corporate income tax paid by Apple.
Last edited by Eowiel on Wed Aug 31, 2016 11:19 am UTC, edited 1 time in total.

User avatar
Zamfir
I built a novelty castle, the irony was lost on some.
Posts: 7248
Joined: Wed Aug 27, 2008 2:43 pm UTC
Location: Nederland

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Zamfir » Wed Aug 31, 2016 11:05 am UTC

Yeah, It's deal where Apple hired a lot of people in Ireland, in areas with high unemployment. In return, they got a nearly complete tax break that became hugely valuable later on. Such a deal is one thing if it's about Irish taxes only, quite another if it affects EU-wide taxes.

Tyndmyr
Posts: 10119
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Tyndmyr » Wed Aug 31, 2016 11:49 am UTC

Eowiel wrote:
Ireland is a small country, but not that small. With 5 million people they still have a significant domestic market. If Apple was really paying only 50 euros per million of profit, how much were they paying in total? They made $53 billion profit worldwide in 2015. So maybe €10 billion in the EU? So they paid what, half a million in taxes? That's pocket change for a country of Ireland's size. Drawing up all the paperwork to give Apple it's special status probably cost more.

I understand offering special deals to foreign companies to attract them. Because free money is free money. But there's gotta be a point where it just isn't worth it anymore, and it seems to me that Apple is way past that point.


There are people working for Apple in Ireland, these employees receive a wage and pay taxes on that. So the income Ireland gets from Apple being there is greater than just the corporate income tax paid by Apple.


This, exactly. Yeah, it might not be 'worth it' from a direct, purely tax revenue standpoint, but from a "benefits the country at large", there's great value in having your people employed.

Is it fair that these sorts of arrangements tend to only happen for big companies, because they have the negotiating power? Not really, but it's obvious why they happen.

In any case, if Ireland failed to uphold it's treaty obligations, then it should be on Ireland to pick up the tab.

Chen
Posts: 5156
Joined: Fri Jul 25, 2008 6:53 pm UTC
Location: Montreal

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Chen » Wed Aug 31, 2016 12:52 pm UTC

Tyndmyr wrote:In any case, if Ireland failed to uphold it's treaty obligations, then it should be on Ireland to pick up the tab.


The problem is Ireland picking up the tab would be giving money to...Ireland. And thus nothing would happen. Which is what Ireland wants but the EU doesn't. The EU wants Apple taxed "fairly" which means that it's Apple that needs to be the one paying Ireland. It's not like this $13 billion is going somewhere other than Ireland.

Tyndmyr
Posts: 10119
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Tyndmyr » Wed Aug 31, 2016 1:20 pm UTC

Surely there is some penalty EU can levy on Ireland for not keeping it's treaty obligations, yes?

Yknow, other than repeating "but you must!"

User avatar
HES
Posts: 4736
Joined: Fri May 10, 2013 7:13 pm UTC
Location: England

Re: EU commission orders Apple to pay €13bn as back taxes

Postby HES » Wed Aug 31, 2016 1:26 pm UTC

Tyndmyr wrote:Surely there is some penalty EU can levy on Ireland for not keeping it's treaty obligations, yes?

What would that achieve though? It's not about punishment for a treaty violation, it's about achieving the aim of the treaty i.e. ensuring a fair playing field.
He/Him/His Image

Tyndmyr
Posts: 10119
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Tyndmyr » Wed Aug 31, 2016 1:34 pm UTC

If there is no penalty, then there is no enforcement, and nothing prevents Ireland from delaying indefinitely.

User avatar
CorruptUser
Posts: 8518
Joined: Fri Nov 06, 2009 10:12 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby CorruptUser » Wed Aug 31, 2016 1:39 pm UTC

sardia wrote:
CorruptUser wrote:Or maybe countries could get smart and require companies to pay tax on profits based on where the goods are sold rather than whichever microstate offers the most trivial tax rate? That is, if 80% of your revenue was made in the US, 80% of your profits were made in the US, even if your books state that all of your profit was the result of a single office in Monaco.
if I had a corporation in Ireland, which owns all the patents, and then subsidiaries which pay licensing fees to the corporation in Ireland, aren't my profits in Ireland? Did you solve the problem?
Aren't there compliance reasons against this? Or is it like Dvorak keyboards, a good idea, but buried by bureaucratic inertia?


Nope, revenue is still made elsewhere; subsidiary gets consolidated with the parent company/companies come tax time (itself already headache). The parent company may be in Ireland, but if the subsidiary made the revenue in Britain, have to pay British tax on profit. The remaining profit can then be sent back to Ireland if you like.

But yes, the bureaucratic stuff will be a headache, but not impossible.

User avatar
Echo244
Posts: 511
Joined: Wed May 20, 2015 9:49 am UTC
Location: Ping! Ping! Ping! Ping!

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Echo244 » Wed Aug 31, 2016 2:00 pm UTC

Tyndmyr wrote:If there is no penalty, then there is no enforcement, and nothing prevents Ireland from delaying indefinitely.


There are fines for noncompliance, iirc. As in, the UK is currently, and in an ongoing manner until either complying or finally leaving, paying fines for noncompliance on some matter I forget. Prisoners' votes? Something like that.
Unstoppable force of nature. That means she/her/hers.
Has committed an act of treason.

User avatar
sardia
Posts: 5667
Joined: Sat Apr 03, 2010 3:39 am UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby sardia » Wed Aug 31, 2016 2:26 pm UTC

Corrupt user,
I have 0$in profit in the UK because I spent my entire budget paying licensing fees to parent company in Ireland, which I happen to be the sole shareowner. You are free to tax my 0$ in profit at whatever rate you want. Not having any profit in the UK where the taxes were higher was a coincidence, scouts Honor.

User avatar
LaserGuy
Posts: 4356
Joined: Thu Jan 15, 2009 5:33 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby LaserGuy » Wed Aug 31, 2016 4:23 pm UTC

sardia wrote:Corrupt user,
I have 0$in profit in the UK because I spent my entire budget paying licensing fees to parent company in Ireland, which I happen to be the sole shareowner. You are free to tax my 0$ in profit at whatever rate you want. Not having any profit in the UK where the taxes were higher was a coincidence, scouts Honor.


Simple solution: Tax gross revenues instead of profits.

Tyndmyr
Posts: 10119
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Tyndmyr » Wed Aug 31, 2016 4:28 pm UTC

It's simple, but it's also bad. It punishes any low margin activity, even if it's something that's done in vast quantity, and is normally profitable.

It also encourages vertical monopolies, which causes all sorts of problems.

Mutex
Posts: 960
Joined: Wed Jan 09, 2008 10:32 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Mutex » Wed Aug 31, 2016 4:36 pm UTC

The other solution is to say "paying royalties to a parent company in another country is a blatant tax-evasion scam so we're taxing you on the profit you made if we ignore those payments".

User avatar
Soupspoon
You have done something you shouldn't. Or are about to.
Posts: 2193
Joined: Thu Jan 28, 2016 7:00 pm UTC
Location: 53-1

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Soupspoon » Wed Aug 31, 2016 4:56 pm UTC

Cue "Uncle/aunt companies", etc, to get around such a rule. In fact it wouldn't surprise me if companies not so obviously 'related' aren't commonplace, having nothing in common but the very few titular executives named in (seperately filed, in different business registries) company regostrations. When the people really benefittong don't set up a third party puppet executive under their control after all.

(If I've thought up those ideas, you can be darn sure that there are better ones. Known to both 'evaders' and tax-control officials who are still trying to get the gaps closed further.)

Tyndmyr
Posts: 10119
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Tyndmyr » Wed Aug 31, 2016 5:02 pm UTC

Large overlap in shareholders should suffice, I think? You wouldn't really need a parent entity to, in practice, make such an arrangement practical.

Wouldn't even need overlapping shareholders to make a reciprocal arrangement practical.

It does add some complexity to the arrangement, but I think some degree of cheesing tax laws is inevitable. Complex laws breed loopholes, and rich corporations, it's worth hunting/making loopholes.

Let's look at a milder form of it. The company declares SOME profits in the country, but the company it's paying fees to is more profitable. Is that wrong? What level of fees is too much, given that licensing fees are pretty normal in every other relationship?

Eowiel
Posts: 163
Joined: Sat Jun 12, 2010 5:57 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Eowiel » Wed Aug 31, 2016 5:03 pm UTC

Mutex wrote:The other solution is to say "paying royalties to a parent company in another country is a blatant tax-evasion scam so we're taxing you on the profit you made if we ignore those payments".


But if the company doesn't pay royalties to its parent company in the other country, that other country might call it tax evasion since the parent company will have incurred tax deductible costs while developping whatever product now makes money. That other country will, correctly, believe it is unfair that the parent company takes on all the costs without any of the profit by not charging any royalties.

The correct solution would be to make sure that any royalties are charged at the correct martket price but what that market price should be is almost always up for debate.

User avatar
LaserGuy
Posts: 4356
Joined: Thu Jan 15, 2009 5:33 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby LaserGuy » Wed Aug 31, 2016 5:06 pm UTC

Tyndmyr wrote:Large overlap in shareholders should suffice, I think? You wouldn't really need a parent entity to, in practice, make such an arrangement practical.

Wouldn't even need overlapping shareholders to make a reciprocal arrangement practical.

It does add some complexity to the arrangement, but I think some degree of cheesing tax laws is inevitable. Complex laws breed loopholes, and rich corporations, it's worth hunting/making loopholes.

Let's look at a milder form of it. The company declares SOME profits in the country, but the company it's paying fees to is more profitable. Is that wrong? What level of fees is too much, given that licensing fees are pretty normal in every other relationship?


I think if you're playing licensing fees to yourself for the explicit purpose of avoiding taxes, that's a problem at any level of fees.

Mutex
Posts: 960
Joined: Wed Jan 09, 2008 10:32 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Mutex » Wed Aug 31, 2016 5:13 pm UTC

The problem is that the parent company and child company are seen as separate entities, so paying royalties between them is perfectly normal. When in reality they... aren't really. Hence the arrangements that leave one of them totally profitless which, you know, an actual independent company obviously wouldn't agree to (well, unless they had no choice).

Tyndmyr
Posts: 10119
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Tyndmyr » Wed Aug 31, 2016 5:24 pm UTC

LaserGuy wrote:
Tyndmyr wrote:Large overlap in shareholders should suffice, I think? You wouldn't really need a parent entity to, in practice, make such an arrangement practical.

Wouldn't even need overlapping shareholders to make a reciprocal arrangement practical.

It does add some complexity to the arrangement, but I think some degree of cheesing tax laws is inevitable. Complex laws breed loopholes, and rich corporations, it's worth hunting/making loopholes.

Let's look at a milder form of it. The company declares SOME profits in the country, but the company it's paying fees to is more profitable. Is that wrong? What level of fees is too much, given that licensing fees are pretty normal in every other relationship?


I think if you're playing licensing fees to yourself for the explicit purpose of avoiding taxes, that's a problem at any level of fees.


A. Tax Avoidance is legal.
B. If the same thing is legal or illegal, and the only difference is if a given reason is spoken or not, another reason will be spoken.
C. Paying licensing fees to other companies is entirely normal.

It's pretty trivial to avoid a lot of taxes in this fashion without going to the obvious extreme of declaring zero profits.

User avatar
LaserGuy
Posts: 4356
Joined: Thu Jan 15, 2009 5:33 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby LaserGuy » Wed Aug 31, 2016 5:50 pm UTC

Tyndmyr wrote:A. Tax Avoidance is legal.
B. If the same thing is legal or illegal, and the only difference is if a given reason is spoken or not, another reason will be spoken.
C. Paying licensing fees to other companies is entirely normal.

It's pretty trivial to avoid a lot of taxes in this fashion without going to the obvious extreme of declaring zero profits.


As I said, I think the only way to really get around these sorts of problems is to tax local revenues rather than local profits, since revenues are much harder to disguise. Yes, this can cause a problem for low-margin businesses, but the overall rates can be much lower compared to a profit tax since you have a much larger tax base. If you try to tax some particular profit-hiding arrangement, well, the company will just develop some other profit-hiding arrangement instead.

Tyndmyr
Posts: 10119
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Tyndmyr » Wed Aug 31, 2016 6:25 pm UTC

Just changing rates doesn't mitigate that.

It means the vertical monopoly only gets taxed once, whereas specialist industries are being taxed at each layer.

Whatever the rate is, it means that some companies are getting taxed many, many times less than others.

Inducing monopolies is bad.

User avatar
LaserGuy
Posts: 4356
Joined: Thu Jan 15, 2009 5:33 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby LaserGuy » Wed Aug 31, 2016 6:46 pm UTC

Tyndmyr wrote:Just changing rates doesn't mitigate that.


True, but it provides a tax incentive for companies to improve their profit margins, which isn't necessarily a bad thing.

Whatever the rate is, it means that some companies are getting taxed many, many times less than others.


We already have this. Taxes on large corporations are more or less voluntary under the current regime--it would be hard to do worse than what we have--whereas smaller/local businesses can't as easily exploit the same loopholes.

Inducing monopolies is bad.


At least they'll be paying taxes.

Tyndmyr
Posts: 10119
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Tyndmyr » Wed Aug 31, 2016 6:49 pm UTC

LaserGuy wrote:
Tyndmyr wrote:Just changing rates doesn't mitigate that.


True, but it provides a tax incentive for companies to improve their profit margins, which isn't necessarily a bad thing.


....what? Since when do companies not have incentive to improve their profit margins?


Whatever the rate is, it means that some companies are getting taxed many, many times less than others.


We already have this. Taxes on large corporations are more or less voluntary under the current regime--it would be hard to do worse than what we have--whereas smaller/local businesses can't as easily exploit the same loopholes.


Yes, and this would make the problem significantly worse. You have baked in a massive disadvantage for smaller businesses, even BEFORE loopholes are considered.

Inducing monopolies is bad.


At least they'll be paying taxes.


...the purpose of life is not to pay taxes. Taxes are merely a means to an end. Don't screw up an economy just so the numbers line up nicely for the IRS.

elasto
Posts: 3064
Joined: Mon May 10, 2010 1:53 am UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby elasto » Wed Aug 31, 2016 7:07 pm UTC

Tyndmyr wrote:It means the vertical monopoly only gets taxed once, whereas specialist industries are being taxed at each layer.

Whatever the rate is, it means that some companies are getting taxed many, many times less than others.

How so?

WIth the sales tax in the UK, if a business sells to another business, the first business pays a sales tax to the government but the second business can claim it back (revenue neutral). Only the end consumer actually ends up paying tax that they can't claim. So a single vertical business and separate businesses selling to each other result in the same amount of tax paid.

It can be tricky to enforce sales taxes in an online age though - especially for digital goods.

Tyndmyr
Posts: 10119
Joined: Wed Jul 25, 2012 8:38 pm UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby Tyndmyr » Wed Aug 31, 2016 7:09 pm UTC

elasto wrote:
Tyndmyr wrote:It means the vertical monopoly only gets taxed once, whereas specialist industries are being taxed at each layer.

Whatever the rate is, it means that some companies are getting taxed many, many times less than others.

How so?

WIth the sales tax in the UK, if a business sells to another business, the first business pays a sales tax to the government but the second business can claim it back (revenue neutral). Only the end consumer actually ends up paying tax that they can't claim. So a single vertical business and separate businesses selling to each other result in the same amount of tax paid.

It can be tricky to enforce sales taxes in an online age though - especially for digital goods.


That's a VAT, not a "tax all revenue" strategy. Revenue /= value.

VAT shenanigans exist too, of course.

elasto
Posts: 3064
Joined: Mon May 10, 2010 1:53 am UTC

Re: EU commission orders Apple to pay €13bn as back taxes

Postby elasto » Wed Aug 31, 2016 7:54 pm UTC

Oh. Ok.

For me revenue equals sales, and profit equals sales minus costs. But I concede there may be a terminology issue here.

To be fair, my guess is that LaserGuy was talking about a sales tax too (as opposed to whatever a revenue tax would represent).

Google wrote:That is, the revenue of the business includes other income from investments or licenses or interest on debts as well as sales income. However, for some businesses that do not extend credit or have investments, it is possible that total sales equal total revenue. Basic accounting models usually use this assumption.

Learnt something new today.


Return to “News & Articles”

Who is online

Users browsing this forum: Bing [Bot], CorruptUser, notzeb and 17 guests