The Take

What best complements a rich Apple? Tax avoidance.07/09/16

QUTEFS’ Events and Projects Director, Joshua Evans, reviews Apple’s controversial tax scandal in this edition of The Take:

Apple board members have been given food for thought as they ponder how aggressive their tax avoidance strategies should be. This comes as the European Commission discovered that Apple’s corporate structure in Ireland allowed profits to be attributed to intangible head offices. This structure allowed Apple to pay a corporate tax rate of less than 1 percent on its European profits for almost a decade.

The loophole that Apple found is that Apple Sales International is incorporated in Ireland, where it has no US tax liability. However, Apple’s management lives in the US, which under Irish law means that Apple has no tax liability in Ireland. The perfect corporate scenario, but a nightmare for the tax office.

The European Commission has ordered the world’s richest company to pay up to €13 billion in back taxes to Ireland. This has resurfaced a long argued issue between Washington DC and Brussels surrounding potential discrimination of US multinational firms. The US claims that the European Union has unfairly singled out US multinationals when attempting to crack-down on corporate tax avoidance. This argument has recently started to become less pretty.

Earlier this year, the US Senate finance committee called for the Treasury to double the tax rate on European companies in retaliation to the apparent singling out by the EU. Further, the US Treasury has gone as far as accusing the European Commission of trying to become a “supranational tax authority”. The US Treasury also warned that these actions of the EU could undermine foreign investment and the economic partnership between the US and the EU.

US companies such as Apple, General Electric and Microsoft hold some $US2 trillion in profits abroad in an effort to avoid the relatively high domestic corporate tax rate of 35 per cent. If Apple were to repay Ireland, the US government could potentially lose more tax revenue as US profits may decrease. Thus, this outcome is effectively acting as a transfer of revenue from the US government and tax payers to the EU. All in all, this transatlantic relationship is as important as ever in today’s globalised economy, rife with spots of political unrest and economic uncertainty.

That summarises Apple’s Irish tax debacle that has been widely covered in recent financial news. Check back next week for more QUTEFS content.

Josh Evans Signature

Joshua Evans,
Events and Projects Director