
Europe’s Planned Digital Tax Heightens Tensions with U.S. - kimsk112
https://www.nytimes.com/2018/03/19/us/politics/europe-digital-tax-trade.html
======
pkaye
The problem seems to be rooted within the EU itself with Ireland, Luxembourg
and others allowing these companies to pay little or not taxes.

~~~
derriz
Ireland's corporate tax rate is 12.5% which is in the lower half of the table
of EU rates but that's no basis to brand it a "tax haven".

People get riled up because of an exclusively American twist to their
corporate tax rule which allows American companies to defer paying US
corporate tax on foreign earnings until the money is "repatriated". This is
why you never see UK, German, Japanese, etc. companies use Ireland as a tax
"haven".

Ireland follows international law in taxing multinationals on the profits
generated in Ireland. When you hear a claim along the lines of "Apple only
pays 2% on its revenues in Ireland", it's because the vast majority of the
profit is taxable in the US not in Ireland but payment is deferred because of
this US tax loophole. Just because the cash hasn't been handed over to Uncle
Sam, doesn't mean it isn't due.

It's perfectly understandable that the US government is unhappy at this
attempt by a foreign government to grab corporate tax which by all
international standards belongs to the US treasury. If the EU (and I'm a proud
European) wants a share of digital tax, then they should grow their own
profitable tech companies to tax instead of selectively eyeing up US tech
companies. The US doesn't get to impose corporate tax on German car makers or
French wine producers - nor should the EU get to impose a corporate tax on US
tech companies.

~~~
JanSt
Except they don't pay 12.5%.

Apple paid 0.005% in 2014.

[https://www.cnbc.com/2016/08/30/how-apples-irish-
subsidiarie...](https://www.cnbc.com/2016/08/30/how-apples-irish-subsidiaries-
paid-a-0005-percent-tax-rate-in-2014.html)

"When you hear a claim along the lines of "Apple only pays 2% on its revenues
in Ireland", it's because the vast majority of the profit is taxable in the US
not in Ireland"

No, this is not the reason. They pay an incredible low tax rate for all EU
profit because of special illegal deals.

~~~
derriz
That’s not a fair comparison. You don’t pay corporate tax based on a
percentage of turnover so your rate has nothing to do with corporate tax
rates. They pay Irish corporate tax on profits generated by their operations
in Ireland which are understandably a tiny fraction of their sales in Europe.
The rest is taxable in the US and in fact Apple have recently started
repatriating foreign profits to the US and are paying US corporate tax on
them.

~~~
JanSt
No, you don't understand the system at all

First, they shift all profit to Ireland as "licensing costs" for intellectual
property.

Next: "Ordinarily, those profits would be taxed in Ireland at the relatively
low rate of 12.5 percent but — thanks to an agreement between Apple and
Ireland — the vast majority of profits in Ireland were attributed to a "head
office" not located in any country and therefore not subject to taxes in
Ireland or anywhere." [https://www.cnbc.com/2016/08/30/how-apples-irish-
subsidiarie...](https://www.cnbc.com/2016/08/30/how-apples-irish-subsidiaries-
paid-a-0005-percent-tax-rate-in-2014.html)

~~~
derriz
You’re contradicting yourself - they cannot simultaneously shift all profits
to Ireland and to a non-Irish head office. They split the profits on their
international sales channeled through Ireland between both. The non-Irish
profits are taxable by the US which is why the US government is fighting the
EU over this as they rightly (in my opinion) see it as a money grab.

~~~
MagnumOpus
No he is not contradicting himself, and yes they can do both of those and
spirit away the entirety of their EU profits into a caribbean island with
minimal taxation. Read up on the double irish dutch sandwich tax strategy.

~~~
derriz
You’re implying that by moving international profits to a Caribbean country
means Apple has avoided corporate tax? Like laundering money?

This is not the case - they park their international profits in the Caribbean
because US tax code allows them to keep profits offshore and only pay tax when
they bring the profits onshore.

If Ireland was facilitating corporate tax avoidance by an American country,
why is the US supporting Ireland in the Apple case in the ECJ?

Does this not suggest that there is more complexity to this situations than
the hyperbolic headlines?

------
lainga
US aside, is there any word on how Ireland et al. are reacting to the EU
trying to cut off their cash cow?

~~~
oh_sigh
It may not be that bad for Ireland. Ireland had stipulations in bringing a
certain amount of operations(ie jobs) into the country to get their favorable
tax rate. If the tax benefits are cut back, these businesses may decide it is
worth while to keep operations ongoing in Ireland even without the favorable
tax regime. Only time will tell on that front if Google et al will remain
there.

~~~
derriz
There is no "favourable tax rate" in Ireland - around 1990 or so, the EU ruled
against selective favourable tax rates. Before that, Ireland used to have a
10% rate for exporting (largely foreign) companies and 25% for non-exporting
companies. As a result of the ruling, a single 12.5% rate was introduced. It's
been like that since.

~~~
MagnumOpus
But with the Double Irish strategy and its successors, no US company actually
pays those 12.5%, but less than 0.1% instead...

~~~
derriz
Eh no to the 0.1%. But I have to concede that the power of shocking but
nonsense headline numbers is hard to argue against given how I'm burning
through Karma here.

The 0.1% is a number concocted by treating the value of European retail sales
as a numerator and the Irish corporation tax as a denominator. The problem is
that the dimensions in this division are not-compatible. By the same
calculation Walmart only paid 1.2% corporate tax in the US in 2014 (corporate
tax paid / total revenue). In actual fact, Walmart paid an effective rate of
over 30% because corporate tax is calculate on profits - not on revenue.

~~~
JanSt
derriz, the ~0.005% taxes is not on revenue but on EU profits. How can you
keep repeating your same mistake and keep burning through your karma?

"After an investigation, the EC determined that Apple, in accordance with the
tax agreement with Ireland, had effectively paid annual taxes of 1.0% on its
European profits in 2003 and ~0.005% in 2014." -marketrealist
[https://marketrealist.com/2018/01/eu-demanding-15-billion-
un...](https://marketrealist.com/2018/01/eu-demanding-15-billion-unpaid-taxes-
apple)

How about you post some of your sources?

~~~
derriz
JanSt it seems we are talking across each other so this will probably be my
last post on the subject.

The EC's determination is being challenged in court on the very basis that
Vestager completely misunderstood or deliberately miscalculated what was "EU"
profit.

She basically claimed that Apple USA's intellectual property and management
contributed nothing in generating profits on Apple sales in the EU. This is
clear nonsense - without Apple USA, there would be zero "Apple" profits in the
EU.

Ask yourself a simple question; when Apple sells an iphone in Europe, say for
say 600EUR excluding VAT or sales tax, how much of that profit "belongs" to
the US operation and how much "belongs" to the European distribution center
which happens to be based in Ireland?

Vesteger's claim is that ALL OF IT belongs in Ireland. This claim will not
last 10 minutes in front of the ECJ judges.

The vast majority of it - according to decades of international tax case law -
belongs to the Apple USA as they invented and developed the product. The
product isn't even manufactured in Ireland.

As a result of transfer pricing, the Irish distribution has very little profit
to declare and so pays very little corporation tax.

But this does NOT mean that Apple has avoided tax. They park their US profit
in a Carribean bank account waiting for an opportune moment to repatriate it
and when they do they pay corporate tax on it. The ironic aspect of this thing
is that the US has the highest effective corporate tax rates in the OECD and
so Apple would be far better off shifting as much of the profit as they can to
Ireland. But they cannot because of international norm on transfer pricing.

------
HumanDrivenDev
More incentive for tech companies to move to the UK?

~~~
oh-kumudo
UK is out of EU. And what is the point of moving to UK, when you want to the
market of EU?

~~~
HumanDrivenDev
To escape silly EU laws like this one, while still being a part of the
continent and close to the market.

~~~
beefield
> still being a part of the continent

Sorry, I understand that this is most likely just figurative, but it very much
gives impression that you haven't looked at the European map for a while.

~~~
swebs
I don't understand your comment. The UK is literally part of the European
continent.

[https://en.wikipedia.org/wiki/Europe](https://en.wikipedia.org/wiki/Europe)

~~~
beefield
I immediately read the original comment as UK belonging to the mainland of
Europe, but you are right, continent can also refer to continental shelf.

[https://en.wikipedia.org/wiki/Continent](https://en.wikipedia.org/wiki/Continent)

"The most restricted meaning of continent is that of a continuous[5] area of
land or mainland, with the coastline and any land boundaries forming the edge
of the continent. In this sense the term continental Europe (sometimes
referred to in Britain as "the Continent") is used to refer to mainland
Europe, excluding islands such as Great Britain"

------
sqdbps
"... that push has prompted complaints from American tech giants, which argue
that they are being unfairly singled out by Brussels. European officials
strongly deny those claims..."

After so many targeted requirements, restrictions, investigations, fines, and
taxes no one's really buying that denial.

It's tariff by other name, which lends credence to Trump's rhetoric about how
we haven't been treated fairly by our so called allies.

EU governance and enforcement lends itself to be hijacked by the bloc's most
powerful members (france and germany, in this particular case the french) and
use them as a cudgel against perceived business threats.

~~~
JanSt
No it's not. Amazon pays less taxes on books sold than any bricks-and-mortar
store in countries like Germany. They abuse the broken tax system and force
smaller players that can't afford those structures (or get an illegal special
Ireland tax treatment like Apple) out of business because they can't compete
against massive scale combined with lower taxes. The EU now tries to fix the
system because those companies keep evading all other measures. The EU
population and local businesses do not accept that damaging behavior anymore.
You want to make profit in our countries? Don't abuse the system or it will be
fixed to be fair again.

~~~
sqdbps
If you are going to benefit from the EU's consolidated market you can't
complain about the benefits companies are extracting from that same
arrangement.

Not to mention that taxing specific companies that happen to come from the
same country while the keeping the tax rules unchanged for the rest of the
economy isn't fair or free trade and would justifiably require retaliation.

~~~
JanSt
Ireland agreed to a special Apple tax treatment so that Apple pays practically
no taxes. Special deals for single companies are illegal under EU law. You
want access to the EU market? Play by the rules.

The tax law is also not applicable only to US companies but to all companies.

This is like saying all law breaking mafia members that corrupted a member
state are coming from the same country and putting them behind bars is not
fair because the EU is a consolidated market and if you want to profit from it
you have to agree that the mafia extracts value from the arrangement and
leaving the rules unchanged for the rest of the non-mafia economy is not fair
or free trade.

~~~
derriz
The commisioner has argued that Ireland agreed to a special deal for Apple.
Ireland and Apple strongly deny that there was any favourable tax deal
offered. The ECJ will decide the case and unless the EU wants to undermine the
entire system of transfer pricing which is the basis for international trade,
they will side with Ireland and Apple.

~~~
JanSt
The EC ruled the tax deal illegal and forced Ireland to collect $13bn which
Ireland denied to do. The EC thus put Ireland to the ECJ and started
implementing alternative tax rules, with the 3% revenue tax being the result.
Paying 0.005% taxes by evading the system? The system will be changed.

"The ECJ will decide the case and unless the EU wants to undermine the entire
system of transfer pricing which is the basis for international trade, they
will side with Ireland and Apple."

Transfer of profit to the lowest tax destination is not the basis for
international trade. Evading taxes will result in tax laws adapting.

~~~
derriz
This is simply factually incorrect. Ireland and Apple lodged the appeal to the
ECJ against the ruling in November 2016. Ireland was forced to collect the 13B
pending the appeal in December 2017.

The US is not the lowest tax destination - in fact it has a relatively high
corporate tax rate. Apple is making their international profits subject to US
corporate tax which is why the US is on the side of Ireland and Apple in the
appeal.

~~~
JanSt
Sorry, but you completely misunderstand the situation. This is not about
moving profit to the US and the US is not the tax haven I'm talking about. Get
your USA out of your head and just accept that they don't pay the taxes they
are obliged to pay in the EU by evading them.

~~~
derriz
Putting "sorry" at the start of a comment accusing me of misunderstand the
situation doesn't really help here. I've contradicted your claimed sequence of
events and of course I googled before writing the post to confirm my memory of
the timeline of the EC ruling and the ECJ involvement.

There is no corporate tax evasion here and that is confirmed by reports like
this one[1] which makes it clear that offshore Apple (and other US
corporation) profits are clearly liable for US corporate tax. The fact that
they can defer paying their US corporate tax is due to a quirk of the US tax
system and nothing more.

[1] [https://seekingalpha.com/article/4150066-repatriation-
make-2...](https://seekingalpha.com/article/4150066-repatriation-
make-2018-1-trillion-buyback-year)

The 3% is a proposed duty/tarif which has nothing to do with how Apple's
profits are and were taxed. This is a tax on revenue/sales/imports not on
company profits.

