The EU's Taxing Problem

Economics was not one of my favorite subjects in college, so I avoided economic courses. But I do know a few things about human nature. If you tax income at too high a rate, corporations will look elsewhere for relief.

In 1991, Apple Corporation cut a deal with the Irish government so that only a certain bracket of its earnings would be taxed, giving it, writes Business Insider, "...a dramatically lower tax rate than it would have to pay in the U.S." In return, Apple promised jobs, lots of jobs, which it provided. The company currently employs 4,000 at its Cork campus and announced in November that it will expand that number by 1,000 by 2017. It is estimated there are 18,000 Apple jobs across the country, including over 5,000 direct Apple employees.

The European Commission, which enforces EU law, now accuses Ireland of "...providing illegal state aid" to Apple, and, according to The Guardian, has chosen to clamp down "on tax avoidance schemes employed by multinationals." The commission, having rejected Apple's tax deal, now says the company owes $14.5 billion in back taxes to Ireland. This brought an ominous response from Apple CEO Tim Cook, who basically told the commission that they can have taxes, or they can have jobs, but they can't have both.

The Irish government announced on Friday that it will appeal the tax bill imposed on Apple by the European Commission.

The U.S. is one of two countries that taxes corporations at the highest rate. Japan is the other. Companies are in business to make money and when they do, most expand, making more money and hiring more people. Those additional employees pay taxes to the government. More jobs create a more stable economy. Even someone without a degree in economics can understand this.

The European Commission's attitude is that it is unfair and illegal in the minds of Brussels bureaucrats for Ireland to cut a tax deal with a corporation, even though the deal benefits that country and presumably lessens the need for more aid from the European Union. No wonder a majority of British voters, tired of being dictated to by Brussels, decided to exit the EU. If legal appeals fail, Ireland could find itself in a similar position.

This is a rare instance in which the U.S. Treasury, which has been trying to crack down on tax avoidance schemes, has found itself on the same side of U.S. corporations. As The Wall Street Journal noted, "That is partly because the U.S., unlike most other industrialized nations, imposes a tax upon repatriation of foreign profits. Any tax that Apple pays to Ireland as a result of the EU's ruling could generate foreign tax credits that ultimately would reduce the U.S. tax the Treasury could collect." The Journal adds, "This could matter even if Apple never brings its profits home."

The way to fix this so that governments can still get tax revenue from corporations and create jobs with their accompanying benefits is to reduce the corporate tax rate. Problem solved.

The trouble is, asking government to accept less money from people who earn it is like asking Dracula to settle for less blood. Private businesses produce jobs and capital. Government does not create capital, but it can harm its accumulation and in so doing, harm itself.

That is the harmful path the EU has chosen to take with this ruling. Richard Bruton, the Irish government's enterprise minister, defended his country's relationship with Apple: "There were no special deals ever in the Irish tax code but there were different phases. There was a period when every sector exporting didn't pay tax on their profits, there was then a period when manufacturing companies had a 10pc rate and every other sector didn't. So there were phases when there were different sectoral approaches but always statute-based, and there were no special deals."

Ireland has struggled more than most European nations to come back from the recession. It would be worse than shameful if Apple pulled out and thousands of jobs were lost. What would EU bureaucrats say to those who lost their jobs? Or do they care?

“The European Commission’s attitude is that it is unfair and illegal in the minds of Brussels bureaucrats for Ireland to cut a tax deal with a corporation,”

That is the money quote. It really isn’t about tax revenue, it is about control.

The EU wants to control everything.

“The tax systems in Member States also have to be in line with Community State aid rules. According to Article 87, paragraph 1 of the EC Treaty any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market. State aid rules apply regardless of the form the aid is given in, i.e. any kind of tax relief can constitute State aid if the other criteria are fulfilled.”

http://ec.europa.eu/taxation_customs/business/company-tax/harmful-tax-competition_en

Ireland’s and Apple’s tax deal cuts into US tax revenue by making Apple want to wait for a 10% US tax deal.

If Apple paid 15% Irish tax, then it might only have to pay an 18% US tax rate at most. Apple would only save 8% by waiting for a US 10% tax rate.

However, if Apple only pays say 1% in Irish tax, then Apple might have to pay 32% US tax if it brought the earnings to the USA. Apple might save 22% by waiting for a 10% US tax rate.

Remember, things like VA benefits have to be paid for.

How? By federal taxation.

The tax money could either come from Apple or from natural person taxpayers like you.

“If you tax income at too high a rate, corporations will look elsewhere for relief.”

If the US government can’t tax the corporation, it can tax the domestic nexus shareholders.

The tax rate might be 3% the value of the stock annually (using the closing price of the last trading day of the prior year) with a credit of up to the amount of the tax for the taxable dividend(s) paid in the prior year.

It called an intangible asset tax.

Another possibility is a luxury tax on small electronic devices.

We need tax revenue to pay for the military and VA and for roads.

“18,000 Apple jobs”

“$14.5 billion in back taxes to Ireland”

Almost a million dollars in unpaid tax per job.

The standard Irish tax rate is among the lowest in the EU.

It is the lowest among English language EU member states.

Apple isn’t going to kiss the Blarney stone state goodbye.

“There are two rates of corporation tax in the Republic of Ireland:
12.5% for trading income
25% for non-trading income

A special rate of 10% for companies involved in manufacturing, the International Financial Services Centre (IFSC) or the Shannon Free Zone ended on 31 December 2003”

https://en.wikipedia.org/wiki/Corporation_tax_in_the_Republic_of_Ireland

I’m tired of corporations (run by leftists) ducking taxes.

I think a 100% federal luxury tax should be placed on hand-held phones selling for over $200.

The EU tax issue strikes me as a similar problem that our Articles of Confederation had - where the central government did not have taxing powers or the ability to enforce and the States were not willing to give anymore.

In the EU case though, they are overreaching and taking more at the central level without being elected and instead of the nation-states pushing back as happened here (instead they are helping) it is the people that are pushing back but with less effect.

Taking over a decade to decide that Irish incentives were “illegal,” slapping on a rate of taxation that was never levied and never even discussed, then having the gall to charge interest on it, is wrong. I strongly suspect Apple will leave Ireland and go to Great Britain if this is allowed to stand.

How did Ireland vote on brexit?

The Republic Of Ireland isn't part of Great Britain and therefore did not vote on it. Apple has no corporate presence in Northern Ireland that I'm aware.

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