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Friday, September 9, 2016

Two columns on one subject – Europe’s decision to discipline Apple for tax-dodging

A great example to the US on how to deal with corporate tax cheats
Edited by Will Collette

Image result for apple tax evasionI didn’t write either of the two columns that appear together in this article. Their subject is the same: the decision by the European Union to order Apple to pay $14.5 billion in back taxes that the company thought it could evade in the US by technically moving its headquarters to Ireland.

We’ve often run articles about this corporate tax-dodging scheme – most recently on an aborted effort Pfizer to pretend it was an Irish company to evade US tax.

But Europe isn’t willing to give these tax cheats a free ride, even though these companies think they are too big to discipline. Economist Robert Reich and corporate crime expert Phil Mattera give two useful views of the EU’s recent action and how it offers an example to the US on how to deal with corporate blackmail.

WARNING to those with low tolerance for long articles – this is one of those.

First, we hear from Robert Reich….




For years, Washington lawmakers on both sides of the aisle have attacked big corporations for avoiding taxes by parking their profits overseas. The European Union did something about it. 

The European Union’s executive commission ordered Ireland to collect $14.5 billion in back taxes from Apple.

But rather than congratulate Europe for standing up to Apple, official Washington is outraged.

Republican House Speaker Paul Ryan calls it an “awful” decision. 

Democratic Senator Charles Schumer, who’s likely to become Senate Majority Leader next year, says it’s  “a cheap money grab by the European Commission.” 

Republican Orrin Hatch, chairman of the Senate Finance Committee, accuses Europe of “targeting” American businesses. 

Democratic Senator Ron Wyden says it “undermines our tax treaties and paints a target on American firms in the eyes of foreign governments.”

P-l-e-a-s-e.

These are taxes America should have required Apple to pay to the U.S. Treasury. But we didn’t – because of Ryan, Schumer, Hatch, Wyden, and other inhabitants of Capitol Hill haven’t been able to agree on how to close the loophole that has allowed Apple, and many other global American corporations, to avoid paying the corporate income taxes they owe.

Let’s be clear. The products Apple sells abroad are designed and developed in the United States.
So the foreign royalties Apple collects on them logically should be treated as corporate income to Apple here in America.

But Apple and other Big Tech corporations like Google and Amazon – along with much of Big Pharma, and even Starbucks – have avoided paying hundreds of billions of dollars in taxes on their worldwide earnings because they don’t really sell things like cars or refrigerators or television sets that they make here and ship abroad.  

Their major assets are designs, software, and patented ideas. 

Although most of this intellectual capital originates here, it can be transferred instantly around the world – finding its way into a vast array of products and services abroad. 

Intellectual capital is hard to see, measure, value, and track. So it’s a perfect vehicle for tax avoidance.  

Apple transfers its intellectual capital to an Apple subsidiary in Ireland, which then “sells” Apple products all over Europe. And it keeps most of the money there. Ireland has been more than happy to oblige by imposing on Apple a tax rate that’s laughably low – 0.005 percent in 2014, for example.

Apple is America’s most profitable high-tech company and also one of America’s biggest tax cheats. It maintains a worldwide network of tax havens to park its global profits, some of which don’t even have any employees.

Sitting atop this network is “Apple Operations International,” incorporated in Ireland. Never mind that Apple Operations International keeps its bank accounts and records in the United States and holds board meetings in California.

It’s still considered Irish. And its main job is allocating Apple’s earnings among its international subsidiaries in order to keep taxes as low as possible.

As a result, over last decade alone Apple has amassed a stunning $231.5 billion cash pile abroad, subjected to little or no taxes.  

This hasn’t stopped Apple from richly rewarding its American shareholders with fat dividends and stock buybacks that raise share prices. But rather than use its overseas cash to fund these, Apple has taken on billions of dollars of additional debt.  

It’s a scam, at the expense of American taxpayers.

Add in the worldwide sales of America’s Big Tech, Big Pharma, and Big Franchise operations, and the scam is sizeable. Over 2 trillion dollars of U.S. corporate profits are now parked abroad – all of it escaping the U.S. corporate income tax.

To make up the difference, you and I and millions of other Americans have to pay more in income taxes and payroll taxes to finance the U.S. government.

Why can’t this loophole be closed? In fact, what’s stopping the Internal Revenue Service from doing what the European Commission just did – telling Apple it owes tens of billions of dollars, but to America rather than to Ireland?

The dirty little secret is the loophole could be closed, and the IRS could probably do what Europe just did even under existing law. But neither will happen because Big Tech, Big Pharma, and Big Franchise have enough political clout to stop them from happening.

Ironically, the European Commission’s ruling is having the opposite effect in the United States. It’s adding fuel to the demand Apple and other giant U.S. global corporations have been making, that the United States slash taxes on corporations that move their overseas earnings back to the United States.
In other words, they want another tax amnesty.

Congress’s last tax amnesty occurred in 2004, when global U.S. corporations brought back about $300 billion from overseas, and paid just a tax rate of 5.25 percent rather than the regular 35 percent U.S. corporate rate.

Corporate executives argued then – as they argue now – that the amnesty would allow them to reinvest those earnings in America.

The argument was baloney then and it’s baloney now. A study by the National Bureau of Economic Research found that 92 percent of the repatriated cash was used to pay for dividends, share buybacks or executive bonuses.

“Repatriations did not lead to an increase in domestic investment, employment or R.&D., even for the firms that lobbied for the tax holiday stating these intentions,” the study concluded.

The political establishment in Washington is preparing for another tax amnesty nonetheless. In a white paper published last week, the Treasury Department warned that an American corporation like Apple, ordered by the European Commission to make tax repayments, might eventually use such payments to offset its U.S. tax bill “when its offshore earnings are repatriated or treated as repatriated as part of possible U.S. tax reform.”

Rather than another tax amnesty, we need a crackdown on corporate tax avoidance. 

Instead of criticizing the European Commission for forcing Apple to pay up, American politicians ought to be thanking Europe for standing up to Apple.

At least someone has.

ROBERT B. REICH is Chancellor's Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies. He served as Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written fourteen books, including the best sellers "Aftershock", "The Work of Nations," and"Beyond Outrage," and, his most recent, "Saving Capitalism." He is also a founding editor of the American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, and co-creator of the award-winning documentary, INEQUALITY FOR ALL. 

Putting Apple in Its Place
By Phil Mattera in the Dirt Diggers Digest

Apple’s indignant response to the European Commission tax ruling has nothing to do with an inability to pay. The company’s cash pile of more than $200 billion could cover the assessment several times over.

Instead, it’s something more akin to the attitude attributed to the late New York hotelier Leona Helmsley: only the little people pay taxes.

Large corporations like Apple think that what they do is so important that they should be able to skirt their fair share of taxes.

Some of their dodging is covert and some is done brazenly out in the open; some is done against the wishes of tax collectors and some is done with their full cooperation.

The covert portion of Apple’s tax avoidance started to come to light in 2012, when the New York Times published an investigation of the company’s use of esoteric accounting devices such as the “Double Irish With a Dutch Sandwich” to route profits in ways that minimized tax liabilities or eliminated them entirely.

A year later, the Senate’s Permanent Subcommittee on Investigations issued a report providing additional details on Apple’s tax tricks. It also held hearings in which Apple CEO Tim Cook insisted what the company was doing was simply “prudent” management while Kentucky Sen. Rand Paul brought shame on himself by declaring that Apple was owed an apology.

While Congress has done little to thwart corporate tax dodging, the EC used the Senate report to launch an investigation of Apple that resulted in the recent ruling. Now some members of Congress are making fools of themselves by protesting that ruling.

As Apple’s global tax dodging has gotten the most attention, the company has been able to avoid some domestic taxes with much less bother.

That because states and localities routinely offer the kind of special tax deals to individual companies that are banned in Europe, more so now that Ireland’s attempted end-run was rejected.

This is seen most clearly in the subsidy packages that Apple and other tech giants such as Facebook and Google receive when they build new data centers necessary to handle the ever-increasing volume of human activity taking place in “the cloud.”

Although the decision as to where to locate the facilities is based primarily on considerations such as the availability of low-cost energy (data centers are power hogs), these companies want to receive large amounts of taxpayer assistance.

As my colleague Kasia Tarczynska points out in a forthcoming report on the subject, companies such as Apple regularly negotiate subsidy packages and special tax breaks worth hundreds of millions of dollars for data centers that typically create only a few dozen jobs.

In North Carolina, Apple successfully pressured the state to allow it to calculate its income taxes through a special formula that will save the company an estimated $300 million over the 30-year life of the agreement.

Local officials provided property tax abatements worth about $20 million more. All this for a project that was to create only about 50 permanent jobs. Despite its $1 billion cost, the facility did little to boost the local economy.

“Apple really doesn’t mean a thing to this town,” a resident told a reporter in 2011. Apple went on to receive generous subsidy packages for additional data centers in Oregon and Nevada.

Apple’s various forms of tax avoidance are reminders that large corporations, even those that profess to have enlightened social views, don’t have respect for government and resent having to follow its rules.

Rather than pay taxes and follow regulations, they prefer to make charitable contributions and undertake corporate social responsibility initiatives. In other words, they want to do things on their own terms and not comply with the same obligations as everyone else.

Kudos to Europe for beginning to put Apple in its place.