‘Creative’ tax planning is all the rage these days as multinational corporations run rings around national jurisdictions spiriting profits and liabilities through the shadows, loopholes to stay just about on the right side of the letter of the law, if not the spirit of it. They are all up to it. Amazon, Google, Starbucks, McDonalds and countless many more have been at it for years, and they have got pretty good at it.
Last month, the mighty Apple corporation, the world’s largest company was stopped in it’s tracks as the European Union called time it’s affairs in Ireland, ordering them to pay back a hefty €13 billion to the Irish government in back taxes that they say Apple unfairly dodged. Unsurprisingly Apple complained, more of a surprise was that the Irish government complained just as loudly.
Since the crash of 2008,during which Ireland took something of a bashing as its property and banking sector all but collapsed it has pinned its hopes to attracting big multinational corporations looking for a European Union headquarters, by promising corporation tax rates that undercut much of the rest of the continent. The payoff for Ireland is the injection of investment, the employment it brings, and the opportunity to skim off taxes that ethically are due to another country.
The schemes are as various as they are devious, but to give you an idea of how it works, let’s imagine that company A makes a profit of a billion Euros in country 1, where the tax rate is 20%, it’s subsidiary company in country 2 charges itself a billion Euros to use the company logo and marketing for example. All the profit in country 1 is wiped out, and the subsidiary in country 2 is suddenly running a billion euro profit without actually making anything, and pays tax at a lower rate, say 10%. Bingo. So country 1 has missed out on the 20% it was ethically owed, and country 2 picks up a 10% slice of something it has no moral right to. Essentially this is what these multinationals are up to in collusion with various governments, and it is all legal…more or less.
In Ireland Apple got so efficient at this that they eventually got their tax rate down to 0.005% in 2015. The European Union ruled that this amounted to illegal state aid and ordered Apple to pay back €13 billion, a drop in the ocean to Apple who have an estimated cash fund of €250 billion squirrelled away in these schemes around the world, but the implications could be huge.
The Irish government faces the potential that these multinationals including Apple could just pick up their tent and leave for new shores with more beneficial arrangements leaving them somewhat up the creek and possibly heading for a deeper recession and a rise in unemployment. It is fair to say that the Irish population have never been head over heels in love with the EU, having twice voted down treaties for deeper integration within the bloc, only to be told to go back and vote again on both occasions until they came back with a yes. Being told how much tax it can charge by Brussels may not go down well, and yes, IREXIT has already been mentioned a few times.
Ironically the UK could end up being a beneficiary of this situation depending on how BREXIT negotiations pan out, assuming they ever start in the first place of course. It is fair to assume that the EU must take a consistent approach on this issue not just with Apple or Ireland, effectively they have, by default announced a common EU corporation tax, I’m not sure they have the mandate to do this, but that has rarely slowed them down in the past, so there will be no safe havens from tax in the EU, so these corporations, and their tax lawyers will be looking for a new place to pitch their tent.
If the UK manages to work out some sort of deal that maintains access to the single market, but remains outside of any control over their corporation tax rates, Britain looks like a very good European HQ for a lot of very big companies.
Ethically however, the EU has got this dead right, in theory at least. There is no way that a company that makes getting on for 200 billion dollars a year should be paying 0.005% in tax when my Granny pays 20% on her pension, it really is indefensible, and uncompetitive as it seriously disadvantages rival companies that may be playing by the rules a little more. The only way to do this is to work together as the EU has, but obviously it’s jurisdiction has frontiers, and these companies will always take advantage of this. The only way to put a stop to it is to work globally, and that means with every single country, city state and principality however large or small, rich or poor and get them all to agree. If you leave one single tax haven, or loophole open you can bet your last dollar that is where they will all end up. Best of luck with that one.
Phill McCoffers – Islander October 2015.
