I don't know what the parent comment had in mind, but here's why I think it's a dumb move: the EU just announced to the world that they can override the decisions of the member countries retroactively and at will.
If you want to invest in something in an EU country, you might calculate the taxes due on your investment before deciding if the investment is suitably profitable. With this decision, you now have an unexpected new risk factor to take into account: the EU bureaucracy may retroactively change your tax rate. That means uncertainty of payout, therefore the investment has a lower payout, therefore you are less likely to invest in an EU country.
It wasn't "just now". The rule against privileging single companies is a rule of the Treaty of Rome. Which was first signed in 1957. And by Ireland in 1973. Also the recovery of unlawful state aid is nothing new but established practice.
A better way of minimizing your risk factor would be hiring tax lawyers who know the rules of the EU Single Market. Which makes Cook's comments so baffling: Apple should have known that there is a possibility of a crackdown.
And Apple just got punished for what Ireland did, and is paying Ireland for the privilege. This makes dealing with EU countries a much more problematic venture. Countries trying to improve their economy can't introduce new legislation without it being suspect. Also, Europe was benefitting from that money. Moves like this will cause American companies to repatriate their money so the EU doesn't decide to come up with another number when they are looking to balance a budget item. How do we pay for all of these refuges? Sue American companies...
The EU just ruled that Ireland's tax system was effectively a state subsidy, and thus not allowed under EU tax law. They've told Apple to pay Ireland €12bn.
Ireland is, apparently, trying to appeal this ruling.
"An Apple spokeswoman said that Mr. Cook was referring to his optimism that the U.S. will change its tax code next year, and that his comments didn’t represent any change to Apple’s position on the question."
He gave a testimony to Congress 3 years ago in which he complained about the tax rate. I hardly think this signal will do anything, well all know the one candidate that publicly called for lower corporate taxes and Cook didn't fundraiser for that guy...
Is there any reason why I should have any sympathy? From my basic understanding, these companies engineer their structures and finances in weird and wonderful ways to reduce their tax bill. Fair enough, they have the global reach and luxury of doing so and some aspects legitimately occur in other tax jurisdictions.
However I have no sympathy for their complaints that it is too expensive to repatriate the money. It seems unfair to expect the law should change because you made the decision to accumulate money outside of the country to avoid paying taxes that would otherwise be due. I might be naive expecting parity but just like everyone else corporations should pay their way.
Yes, Apple and other international companies have a real point. If they sell stuff in Portugal, for example, the pay taxes on the item to Portugal plus make some profit. If they then transfer the profit to the US, the US would like to tax the company a second time.
It's kind of questionable that transferring properly earned and taxed funds from another country into the US makes the US suddenly want to tax the funds.
This also has consequences. If the best place for Apple to invest some of its money is the US, but the tax makes it less profitable, Apple may choose to invest that money in a different country instead. So the tax code encourages US countries to invest overseas profits into overseas investments.
"They can claim a tax deduction of all the taxes paid globally on their U.S tax returns."
No - I don't believe this is true in the sense you mean it.
Effectively for corp. taxes - US companies are indeed 'double taxed'.
This means US companies are incented to leave zillions overseas and not bring it back to America.
The US tax code basically ignores the fact that the rest of the world exists. Most countries tax codes have to deal with the fact there is such a thing as 'international markets'.
The terrible thing is - there is any easy fix. Any President could pull it off I think.
If the US got rid of double taxation, and reduced the corporate tax rate - I think most business leaders would accept the closing of all the crazy loopholes.
Am I getting this right? Apple pays 1% or less on corporate profits in the EU. An EU court decides that this is bullshit and shouldn't be that way. Tim Cook complains that they made everything up and that the below 1% tax rate is reasonable and completely legal.
Meanwhile Apple's $200 billion are sitting in Europe far away from the 35% tax rate in the US. Tim Cook says that 35% is too high to pay and says that something like 25% would be reasonable. If the US doesn't change its corporate tax rate to something lower, they won't get a single dollar from Apple.
Here's the thing I don't get, how is 25% in the US acceptable but more than 1% in Europe is considered wrong? 25% of the $200 billion would be $50 billion which is way higher than the $13 billion fine...
Am I comparing Apples to Oranges here? Or is Apple simply unwilling to pay any corporate taxes outside the US?
This has been discussed multiple times in several thread, and no, Europe (i.e. the EU) is not changing any rules retroactively. You're welcome to point out the specific rule they have changed if you feel that I'm wrong.
First of all, the 25% in the US is on top of what is taken in Europe. The US has pretty insane taxes. Secondly, Europe is looking more kleptocratic, and while maybe he can afford to pay up today, who knows what they might take in the future?
Would you be willing to put your money into Venezuela even at 0% tax?
It's not as if you would move your money out of Europe they suddenly can't hit you with taxes anymore. If you want to keep doing business in the EU, you'll need to comply with EU rules (and yes, pay taxes).
Apples and oranges. "1% or less" is the effective tax rate Apple has historically paid in the EU. 35% (or 25%) is the nominal tax rate Apple is discussing paying in the US. After a bunch of tax avoidance gimmick the nominal 35% rate will be much lower.
The US tax code is an outlier in the world in having both a very high corporate tax rate and then also a huge number of ways to avoid actually paying that tax. The Economist has written extensively about this, for example http://www.economist.com/news/leaders/21608751-restricting-c...
Does anyone know how much money is sitting outside the country from all companies so we know the total impact of bringing money back?
Can we incentivize bringing money back so we can reinvest in infrastructure for high speed transportation, self-driving cars and insanely crazy high speed Internet?
The situation is complicated. There actually is no "EU tax"--each member of the EU sets its own tax policy. This is similar to state tax regimes in the United States, and it creates a similar situation: some EU countries compete for business revenue by trying to make their tax systems kind to business.
Ireland, a little nation on an island far away from the rest of the EU, has decided that they will attract businesses by offering very low tax rates. Apple obliged them and based their European business in Ireland.
BUT, the EU requires that each member nation "play fair" in how it subsidizes national businesses. The kerfluffle over Apple's Irish tax bill is because the EU competitiveness committee has ruled that Ireland's low taxes are equivalent to an unfair subsidy. But the key point is that it is Ireland's rate, which is why Ireland is also fighting the EU ruling. If they can't have lower-than-average business tax rates, they might have a harder-than-average time attracting businesses.
U.S. federal taxes apply to ALL U.S.-based businesses, and apply to their global business (unlike every other national tax regime in the world). So--since Apple is a U.S.-based business, they cannot avoid federal taxes if they bring profits home the U.S.
Apple cannot realistically expect to get more than a marginal improvement in the U.S. federal rate, because there is not competition with the federal government for setting that rate. So they store their profits outside the U.S., hoping the rate goes down in the future.
"The kerfluffle over Apple's Irish tax bill is because the EU competitiveness committee has ruled that Ireland's low taxes are equivalent to an unfair subsidy. But the key point is that it is Ireland's rate, which is why Ireland is also fighting the EU ruling. If they can't have lower-than-average business tax rates, they might have a harder-than-average time attracting businesses."
Ireland made a deal with Apple, whereby Apple effectively paid NO tax (vs the standard Irish rate of 12.5 or 13%). THAT is the problem - that Apple scored a preferential one-off deal that is not available to most other business operating in Ireland.
> THAT is the problem - that Apple scored a preferential one-off deal that is not available to most other business operating in Ireland.
Apple and Ireland both seem to disagree with this. It's a major point of contention in the case.
Anyway, even if Ireland did give Apple a special rate, that would still arguably be "Ireland's rate." I just wanted to illustrate the difference between the EU, where the component nations are the highest taxing authorities and can compete on tax rates (now in question, to some extent), vs. the U.S, where the federal government is the single highest taxing authority.
Edit to add: In the EU, multinationals have leverage because they can choose their tax regime. In the U.S. multinationals have little leverage over the federal government. This explains why Apple would expect to have a lower tax rate in the EU than the U.S.
Please, stop guessing and stick to the facts. The EC ruled that Ireland's government favoured a company over others (I.e. Unfairly subsidised Apple over the competition), hence why Apple has to give back those subsidies.
This is not a tax issue. The EC and the EU in general are cool with Ireland's taxes. Hell, Ireland could effectively lower the company tax to 1% and that'll be perfectly fine.
Apple is actually arguing that all of it's value is created in the United States, and so Only U.S. should collect the taxes. But it won't send them to Treasury yet as it is hoping the Govt would lower the tax rate next year.
The USA is alone in the world with it's odd repatriation laws.
If a company pays x% tax somewhere overseas - they still have to pay full amount of corporate tax when repatriating - meaning US companies are 'double taxed'.
I.E. They pay 30% in Russia, then another 35% in the US.
That's crazy.
In most countries, you pay tax in the jurisdiction overseas - and then a 1-4% 'repatriation' fee bringing it home. This is more rational.
The US also has crazy high corporate taxes - some of the highest in the world - added to this a crazy bunch of odd loopholes.
The US tax system needs to be cleaned up here:
A) Small repatriation tax, and don't double tax foreign sales.
B) Reduce corporate taxes to make them more competitive with international standards.
C) Get rid of the loopholes and actually make corps pay the tax.
Obviously - the EU needs to clean up it's act as well.
Sane, rational taxation would have solved the repatriation problem - and the EU/Ireland tax avoidance problems a long time ago.
Unlike healthcare or some other unwieldy subject - this one is easy. Everyone knows what needs to be done. Nobody seems to be willing to do it.
Does anyone have insight into why this is? The US seems uniquely aggressive in the way it pursues its citizens' and corporations' international earnings.
Why is the US the only country that does this? Is it just greedy? Does it feel more entitled to taxing those things than other countries? Is there a historical or cultural reason it ended up this way?
45 comments
[ 3.1 ms ] story [ 112 ms ] threadIf you want to invest in something in an EU country, you might calculate the taxes due on your investment before deciding if the investment is suitably profitable. With this decision, you now have an unexpected new risk factor to take into account: the EU bureaucracy may retroactively change your tax rate. That means uncertainty of payout, therefore the investment has a lower payout, therefore you are less likely to invest in an EU country.
A better way of minimizing your risk factor would be hiring tax lawyers who know the rules of the EU Single Market. Which makes Cook's comments so baffling: Apple should have known that there is a possibility of a crackdown.
Maybe this timeline helps: https://en.wikipedia.org/wiki/Treaties_of_the_European_Union...
Ireland is, apparently, trying to appeal this ruling.
http://www.bbc.co.uk/news/world-europe-37251084
("Tim Cook Says Apple Could Send Cash Back to U.S. Next Year")
Not quite the same meaning as the headline.
Well, maybe Scott Adams can stop declaring himself a Clinton supporter for his safety ...
I was referring to this:
http://blog.dilbert.com/post/145456082991/my-endorsement-for...
seems like he's dangling the money in front of the US gov's nose. perhaps the US gov will help apple avoid this huge bill from EU.
However I have no sympathy for their complaints that it is too expensive to repatriate the money. It seems unfair to expect the law should change because you made the decision to accumulate money outside of the country to avoid paying taxes that would otherwise be due. I might be naive expecting parity but just like everyone else corporations should pay their way.
It's kind of questionable that transferring properly earned and taxed funds from another country into the US makes the US suddenly want to tax the funds.
This also has consequences. If the best place for Apple to invest some of its money is the US, but the tax makes it less profitable, Apple may choose to invest that money in a different country instead. So the tax code encourages US countries to invest overseas profits into overseas investments.
No - I don't believe this is true in the sense you mean it.
Effectively for corp. taxes - US companies are indeed 'double taxed'.
This means US companies are incented to leave zillions overseas and not bring it back to America.
The US tax code basically ignores the fact that the rest of the world exists. Most countries tax codes have to deal with the fact there is such a thing as 'international markets'.
The terrible thing is - there is any easy fix. Any President could pull it off I think.
If the US got rid of double taxation, and reduced the corporate tax rate - I think most business leaders would accept the closing of all the crazy loopholes.
Meanwhile Apple's $200 billion are sitting in Europe far away from the 35% tax rate in the US. Tim Cook says that 35% is too high to pay and says that something like 25% would be reasonable. If the US doesn't change its corporate tax rate to something lower, they won't get a single dollar from Apple.
Here's the thing I don't get, how is 25% in the US acceptable but more than 1% in Europe is considered wrong? 25% of the $200 billion would be $50 billion which is way higher than the $13 billion fine...
Am I comparing Apples to Oranges here? Or is Apple simply unwilling to pay any corporate taxes outside the US?
Would you be willing to put your money into Venezuela even at 0% tax?
The US tax code is an outlier in the world in having both a very high corporate tax rate and then also a huge number of ways to avoid actually paying that tax. The Economist has written extensively about this, for example http://www.economist.com/news/leaders/21608751-restricting-c...
Can we incentivize bringing money back so we can reinvest in infrastructure for high speed transportation, self-driving cars and insanely crazy high speed Internet?
Ireland, a little nation on an island far away from the rest of the EU, has decided that they will attract businesses by offering very low tax rates. Apple obliged them and based their European business in Ireland.
BUT, the EU requires that each member nation "play fair" in how it subsidizes national businesses. The kerfluffle over Apple's Irish tax bill is because the EU competitiveness committee has ruled that Ireland's low taxes are equivalent to an unfair subsidy. But the key point is that it is Ireland's rate, which is why Ireland is also fighting the EU ruling. If they can't have lower-than-average business tax rates, they might have a harder-than-average time attracting businesses.
U.S. federal taxes apply to ALL U.S.-based businesses, and apply to their global business (unlike every other national tax regime in the world). So--since Apple is a U.S.-based business, they cannot avoid federal taxes if they bring profits home the U.S.
Apple cannot realistically expect to get more than a marginal improvement in the U.S. federal rate, because there is not competition with the federal government for setting that rate. So they store their profits outside the U.S., hoping the rate goes down in the future.
"The kerfluffle over Apple's Irish tax bill is because the EU competitiveness committee has ruled that Ireland's low taxes are equivalent to an unfair subsidy. But the key point is that it is Ireland's rate, which is why Ireland is also fighting the EU ruling. If they can't have lower-than-average business tax rates, they might have a harder-than-average time attracting businesses."
Ireland made a deal with Apple, whereby Apple effectively paid NO tax (vs the standard Irish rate of 12.5 or 13%). THAT is the problem - that Apple scored a preferential one-off deal that is not available to most other business operating in Ireland.
Apple and Ireland both seem to disagree with this. It's a major point of contention in the case.
Anyway, even if Ireland did give Apple a special rate, that would still arguably be "Ireland's rate." I just wanted to illustrate the difference between the EU, where the component nations are the highest taxing authorities and can compete on tax rates (now in question, to some extent), vs. the U.S, where the federal government is the single highest taxing authority.
Edit to add: In the EU, multinationals have leverage because they can choose their tax regime. In the U.S. multinationals have little leverage over the federal government. This explains why Apple would expect to have a lower tax rate in the EU than the U.S.
This is not a tax issue. The EC and the EU in general are cool with Ireland's taxes. Hell, Ireland could effectively lower the company tax to 1% and that'll be perfectly fine.
If someone else doesn't pay their taxes, either you make up for it by paying more or government services are cut.
If a company pays x% tax somewhere overseas - they still have to pay full amount of corporate tax when repatriating - meaning US companies are 'double taxed'.
I.E. They pay 30% in Russia, then another 35% in the US.
That's crazy.
In most countries, you pay tax in the jurisdiction overseas - and then a 1-4% 'repatriation' fee bringing it home. This is more rational.
The US also has crazy high corporate taxes - some of the highest in the world - added to this a crazy bunch of odd loopholes.
The US tax system needs to be cleaned up here:
A) Small repatriation tax, and don't double tax foreign sales.
B) Reduce corporate taxes to make them more competitive with international standards.
C) Get rid of the loopholes and actually make corps pay the tax.
Obviously - the EU needs to clean up it's act as well.
Sane, rational taxation would have solved the repatriation problem - and the EU/Ireland tax avoidance problems a long time ago.
Unlike healthcare or some other unwieldy subject - this one is easy. Everyone knows what needs to be done. Nobody seems to be willing to do it.
Why is the US the only country that does this? Is it just greedy? Does it feel more entitled to taxing those things than other countries? Is there a historical or cultural reason it ended up this way?