December 19, 2016 / 2:47 PM / a year ago

Irish fight yesterday's tax war with Apple spat

LONDON (Reuters Breakingviews) - Ireland and Apple’s tax tussle with the European Commission could be the last big case of its kind, if U.S. President-elect Donald Trump’s desire to let domestic companies repatriate cash is more than a one-off. Dublin on Monday appealed commission demands for the U.S. tech giant to pay the country 13 billion euros ($13.6 billion) in back taxes, saying it had misapplied state aid rules and was confused about international tax law. Senior Apple executives told Reuters that they intended to launch a legal challenge this week.

An Apple logo is seen in the window of an authorised apple reseller store in Galway, Ireland August 30, 2016. REUTERS/Clodagh Kilcoyne - RTX2NL45

Whatever judges decide, Europe’s pursuit of Apple, Starbucks and Amazon underscores something less contentious: multinationals benefit unduly from perverse rules. Structuring operations so the seat of a company’s intellectual property bears the bulk of the burden means next to nothing paid elsewhere. European Commissioner Margrethe Vestager, who brought the case against the iPhone maker, said Apple’s effective 2011 Irish tax rate was just 0.05 percent, despite it earning 16 billion euros there. Its arrangements may have been permissible under the letter of the law, as Apple has argued. But most people - excluding the ranks of corporate lawyers or some corporate executives - would view this as unjust, especially as Vestager says the effective rate dropped to 0.005 percent in 2014.

Shifting public perception has an effect. Customer dissatisfaction could keep multinationals from overly-aggressive minimisation of tax bills in future. But without clear rules, companies are currently engaging in a bizarre guessing game over what might constitute fair.

Trump could deliver more lasting reforms. The United States’ high corporation tax rate of 35 percent and an exemption for foreign profits are a big cause and symptom of the current distortions: U.S. firms have an estimated $2.5 trillion stashed abroad, according to forecaster Capital Economics. The incoming president wants to slash the headline level to a more competitive level and make it less costly for companies to repatriate their cash.

Other changes would be needed. Maarten de Wilde, an academic at Erasmus University Rotterdam, lists three: treat all companies as one entity, no matter how many countries it operates in; grant tax breaks for equity investment to match those for debt; and tax revenue instead of profit. If Trump were to, say, introduce the first, today’s Irish spat over Apple could end up looking like yesterday’s tax war.


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