[IMGCAP(1)]When I told my wife that I was working on the Apple story, she told me that it’s already been covered—in the Book of Genesis. She’s right, of course, since good versus evil permeates many of the issues in the current tax landscape.
While Europeans might see an evil, gigantic U.S. company getting away with paying extremely low taxes to a Member State, Americans see an evil EU bureaucracy intent on making a money grab from a good U.S. company. By issuing a white paper in anticipation of the EU ruling, the U.S. Treasury made clear that that’s how it sees the issue.
“It’s a move by the antitrust regulator, not Ireland, trying to change the rules in the middle of the game,” said Miguel Farra, chairman of the tax and accounting department at MBAF. “Apple has been doing business in Ireland for years. They had deals in place that were negotiated in 1991 and 2007. They established a factory in Ireland and employed 5,500 workers. It’s common for big companies that are international to establish overseas facilities. The income is not taxable in the U.S. until it’s brought back to the U.S.”
Although the effective tax rate that Apple paid was low, it was the result of negotiations between Apple and Ireland that took place years before the investigation by the EU. “They did a deal and now the EU says, ‘You shouldn’t have done this,’” said Farra. “Of course, Apple and Ireland will appeal and litigate the issue. Since Apple is a public company, they’re setting aside $14 billion as a reserve just in case.”
“If the EU feels that Apple and other U.S. companies are getting an unfair share of revenue they generate, they should rule on a ‘going forward’ basis, and not retroactively,” he said. “Just because the EU is in bad shape and needs the money, they shouldn’t take it from U.S. companies that are paying a low tax rate. It’s really a case of the EU changing the rules in the middle of the game.”
The U.S. Treasury made three points in releasing its white paper last week, ahead of the EU ruling: that the EU approach is new and was unforeseeable by the relevant companies and EU member states; that any recoveries under this new approach should not be imposed in a retroactive manner because it sets a bad precedent for tax policymakers around the world; and that the EU approach undermines bilateral tax treaties between the U.S. and EU Member States, and undermines the work done as part of the BEPS (Base Erosion and Profit Shifting) project.
The Treasury also noted that U.S. taxpayers could end up ultimately footing the bill for any recoveries, since the payments could give rise to creditable foreign taxes.
But the U.S. already has a counter-weapon at its disposal in the form of Code section 891, which allows the doubling of rates of tax on “citizens and corporations of certain foreign countries” where it is found that “citizens or corporations of the United States are being subjected to discriminatory or extraterritorial taxes.”
So take that, EU.
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