We pause our election coverage for a report from the real world of jobs, corporations, and taxes. The European Union’s authorities in Brussels are demanding that Apple, America’s largest corporation, pay billions of Euros in back taxes. The Obama administration is fighting the EU on Apple’s behalf. It shouldn’t be. Instead, it should be taking a lesson from the EU on how to deal with multinational corporations that shift their profits around to avoid paying taxes in the country where they are actually headquartered.
Apple bases its international sales operation in Ireland, even though Apple is run from Cupertino, California. In the United States, according to a Senate report in 2013, it pays about 25 percent of its profits here, but in Ireland, it has been offered a sweetheart deal of a miniscule two percent tax rate on its profits. By transferring its profits from the United States or other countries to Ireland – it’s an operation called “transfer pricing” – Apple has avoided paying billions of Euros and dollars. The Senate report said Apple’s bookkeeping cost the American Treasury at least $74 billion between 2009 and 2012.
The EU wants to hold Apple to account. It claims that by offering Apple special tax breaks, Ireland violated the EU’s rule against offering state aid to one company but not to others. The Obama administration objects on the grounds that the EU’s ruling threatens “tax certainty.” British economist Andrew Watt sums up the situation:
Now, one might imagine that the American public authorities would seek a common cause with their EU counterparts. After all the profits that Apple declares in Ireland (on which it pays 2%) could otherwise have been booked in the US, and subject to (substantially higher rates of) corporation tax there. However, the harsh reaction by the US Treasury indicates that this is viewed, rather, as a European assault on an American national champion.
Politicians, including Donald Trump and Hillary Clinton, often attack these kind of shenanigans when they are done by American corporations. According to the Senate report, 83 of the largest 100 publicly traded American corporations use these kind of strategies to avoid paying taxes to the U.S. Treasury. The effect, of course, is to shift the tax burden onto American workers. But Congress has been remiss about doing anything to prevent these practices – and it’s not just because of Republican intransigence.