Apple To Be Investigated By the EU Over Tax Affairs 155
mrspoonsi (2955715) writes "The European Commission is to open a formal investigation into Apple, Starbucks and Fiat in relation to tax arrangements with three EU countries. The firms' arrangements with Ireland, the Netherlands and Luxembourg will be investigated. Announcing the move, tax commissioner Algirdas Semeta said that 'fair tax competition is essential.' Last year, a US Senate investigation accused Ireland of giving special tax treatment to Apple. The European Commission will look at whether the companies' tax affairs breach EU rules on state aid. Competition Commissioner Joaquin Almunia said: 'In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes.' Countries in Europe cannot allow certain firms to pay less tax than they should, Mr Almunia added."
Click bait ? (Score:1, Insightful)
Why single out apple in the heading?
It's about time (Score:3, Insightful)
They shouldn't forget the other big IT companies - Google, Facebook, etc.
Apple is a wealth extraction engine (Score:4, Insightful)
They're very diligent about keeping tax costs low and manufacturing costs very low. They use marketing and image to keep prices high. They pump as much money out of the middle class and as little as possible into the (world) lower class.
Nominally, that's supposed to be how businesses work, but in that same nominal world, competition is supposed to bring prices down. Apple is the clearest example of how marketing and branding are tools to keep that from happening.
Re:Apple is a wealth extraction engine (Score:3, Insightful)
Nominally, that's supposed to be how businesses work,
Yes.
but in that same nominal world, competition is supposed to bring prices down.
Yes, but it also brings purchasing power down, so there's an abundance of crap that only a minority can afford, and workers have to struggle ever harder to survive. Although his rants about revolution are without evidential basis, Marx's predictions about capitalism have mostly turned out correct.
Anyone who finds their life getting easier - hell, anyone like me with the luxury of being able to post on /. on a weekday morning/afternoon - is part of a tiny minority. We could pretend that hard work got us up there, or we could acknowledge the unusual social and (I expect in many cases) intellectual advantages that we enjoy.
Hollywood accounting (Score:5, Insightful)
Trouble is, they just set up shell companies that are subsidiaries and say we made no money to pay tax on, because of all that IP we had to buy from shell-company-x, woe is us.
The solution is basically a gross receipts tax, which does have its drawbacks but is a lot harder to dodge. I'm an accountant and take it from me that it is a LOT harder to fudge the top line than the bottom line. If you just tax profits then it is fairly trivial to shuffle money around such that you show "no profit". It's called Hollywood accounting [wikipedia.org]. All these schemes that Apple and others are engaging in are variations on Hollywood accounting.
Re:I'll explain this (Score:4, Insightful)
Taxing corporations doesn't really gain you anything. If you shift 100% of the tax burden to individuals, they give up x% of their money to the government. If you shift 100% of the tax burden to corporations, the people still give up x% of their money to the government, just in the form of higher prices and lower wages. Income (money) is just a representation of productivity, and the only source of productivity is people. Corporations are just organizational groupings of people. Remove the people and the corporation's productivity is zero.
There are good reasons to tax corporations - excise taxes to pay for regulation enforcement, VATs to discourage middlemen, etc., and in this particular case to prevent shifting of tax revenue out of countries where the purchase transactions were actually made. But taxing corporations doesn't magically increase government revenue or the purchasing power of individuals. Corporate taxes are still paid for entirely by you and me - we just pay them indirectly via higher prices and lower wages, instead of directly to the government.
Re:It works for Delaware, too. (Score:5, Insightful)
They cannot just emulate them. Ireland derives their advantage from their having low taxes relative to other countries, not from having low taxes in absolute terms. What you suggest is a global race to the bottom, which may be the default "solution" in the absence of effective mechanisms for collective action. Each country has an incentive to attract more business by lowering tax rates, but, if all of them lower rates, most of them will probably end up with lower total revenues than if they could just strike an agreement not to engage in tax competition. This is what the European Union is trying to do.
Whether it is good or bad depends on what you think the effects will be and on how important a weight you place on the welfare of large multinational companies (or rather, some combination of their employees, customers and shareholders, since the tax burden falls on people) versus the public purse and the welfare of their smaller competitors.
This is one of the main reasons why countries are up in arms against these companies. Until recently, Starbucks was not paying corporate tax in the UK. Now, perhaps they were truly unprofitable, although it's hard to believe that such an iconic company would spend more than 14 years constantly opening stores without ever turning a profit AND would also tell investors that its UK operations were profitable when they were not. And there must be something deeply wrong with the UK market since many large, generally profitable companies (Apple, Google, Facebook) often fail to turn a profit there.
The real reason of course is that they use outdated tax laws that were never meant to apply to the kind of international transactions that are possible today to artificially record profits where they will be taxed the least. This is perfectly legal but contrary to the spirit of the tax agreements that were originally meant to prevent rather than encourage tax avoidance. The arms' length principle worked well when a UK company used to buy tomatoes from its Spanish subsidiary to make soup (there are publicly-available market prices for tomatoes), but not so much today when it comes to valuing the right to use the Starbucks logo, name, products and processes. If you manage to pay artificially-inflated fees to a shell corporation in a tax-haven or another EU country that you have made a deal with, you can make it look as if you did not make any profit in a country regardless of its actual profitability.
This makes no sense at all: how much you pay in tax is not a function of real economic factors but of how transactions between units within the company were structured on paper. And it is greatly unfair to smaller competitors who will have to pay taxes. Why should a small coffee shop pay at least 20% on its profits while Starbucks gets to pay a much lower rate even if it sells the same amount of coffee for the same price and has the same cost structure apart from the gimmick of using its own intellectual property?