Hot on the heels of the ‘Brexit’ vote where the UK voted to leave the European Union (EU), and where one of the main reasons given by ‘the masses’ was the ‘interference’ that the EU was having in the UK (i.e. the UK could not ‘set their own rules’), the European Commission decided today to show again how they control the rules by telling Apple Inc that they must pay €13 billion tax to Ireland. The reason given was:
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.
Source: EU Commision Statement
So it does again show how the EU can force rules onto its member states, which (from an outsider’s perspective – i.e. not living in the EU) I can understand would (or could) be frustrating to individual countries.
The more important point however is that it’s about time someone took a stand against the blatant profit shifting that is being done by large multi-national companies – so for that I congratulate the EU Commission.
Yes, large companies have been around for many years, but this problem has been magnified many times over during the last ten to twenty years or so, when these companies are not selling ‘goods’ but rather are primarily selling licences, or software – things that are harder to pin down as to where they are sold from – and which enable this profit shifting to occur.
It’s by no means chance that a number of these companies operate out of low tax environments like Ireland, when their real head offices are in another location, and their sales are taking place all over the world.
And just to confirm this is not just a European issue – James Hardie – an infamous Australian company due to its Asbestos past now also operates out of Ireland, even though most of its sales are in the US. Also no surprise is that my Google Apps invoice that I pay every month comes from a Singapore registered company (Singapore has a lower company tax rate than Australia) – this means less Australian Company Tax (due to how they are structured), and no GST revenue.
Finally, Apple apparently only paid $85 million tax in Australia in 2015, off a turnover of $8 billion. Importantly, we tax on profits, not turnover, but what it does show is that there must be huge royalties being paid from the Australian arm of the business back to a different Apple company further up the food chain (which just happens to be in a low tax country….)
Footnote – The above comments about the EU ‘forcing’ rules on countries, it is not meant to imply that I agree with counties leaving the EU, or that I believe the various rules on commerce, immigration and so forth are wrong – rather I believe that those decisions are for people in the respective countries to have an opinion on, not me as an ‘outsider’.