Is it Apple's problem that Irish law disagrees with EC agreements?
Yes. To the tune of €13bn.
At the scale Apple operates their legal team should be considering whether the deals they negotiate are legal in all the applicable jurisdictions, not just the local one. The Irish government should also have done a better job, so part of the blame lies with them, but that doesn't free Apple of all responsibility.
In any case, we should be taxing land value. That's harder to avoid: you can't hide land.
However, the nice thing about land taxation is that hiding the ownership doesn't matter: you can see from the land registry that it's owned by Shady Cayman LLC, but you don't care who they really are so long as you have a corresponding payment to the tax authorities. If they fail to pay that becomes a lien and ultimately reposession.
> If they fail to pay that becomes a lien and ultimately reposession
And then someone close the the Government leases back said land for 99-years with little to no actual "rent" money and you're back at step one of the problem.
Isn't land already taxed? I believe it is, so you must be talking about increasing the taxes on land while scrapping the rest. Or even further, probably taxing property (a skyscraper doesn't have too big of a land footprint). A few questions I have about this:
How do you tax companies which rent their office/production space?
Isn't taxing land punishing companies planning for growth? It is not uncommon to buy/rent spaces which you don't need now but you know will be needed in the future?
A land value tax only taxes the lane value, not any improvements. Improvements can make it more valuable of course (e.g. via proximity to work, entertainment, subway, etc.) but the improvements are not assessed.
The idea is that taxing improvements means reducing the incentive to build and ultimately passing along the tax to renters.
A LVT doesn't allow pass through as the supply of land is fixed, and a tax cannot reduce the supply of land. It encourages more intense use of land in expensive areas and reduces land speculation.
You can think of it as a rent to the government for the land.
Growing companies who buy expensive core land are punished for making no use of the land, but if it's a soulless suburban office park or rural land kind of deal the costs are far lower.
Really what would happen is zoning would be looser as the incentives align and therefore a greater supply of housing and offices would follow, aiding growing companies.
This very much depends on your jurisdiction - the UK has local government taxation which is very roughly based on house size or commercial building use, and is capped so everything above a large family house ends up paying the same rate.
I'd be quite happy swapping the transaction tax and council tax for an ongoing property value tax, but I also know that wouldn't be very popular in the UK which is so dependent on house price inflation.
How do you tax companies which rent their office/production space?
You don't, you tax the rentier. Whether the property is let or not.
Isn't taxing land punishing companies planning for growth? It is not uncommon to buy/rent spaces which you don't need now but you know will be needed in the future?
The process of "land banking" by e.g. Tesco is controversial in itself, since it potentially results in land and buildings left idle or even rotting while everyone waits for the expansion. It obstructs the use of land by others who want to put it to immediate use.
How do you deal with real estate investors?
Real estate investment is usually heavily geared and pro-cyclical, so I'm quite happy to stick them with a tax bill. Especially if it might prevent another 2008 boom/bust cycle.
It's a form of social engineering, like everything else in the tax code, and requires a bit of attention to detail. How to avoid ruining family farmers while discouraging people from reserving vast areas for sporting estates, for example? What of property-rich but cashflow-poor pensioners (the most common objection)?
>How do you tax companies which rent their office/production space?
You don't, you tax whoever owns the land they rent and the landowner will charge rent commensurate with the expenses he incurs (including tax) by owning the land.
>Isn't taxing land punishing companies planning for growth? It is not uncommon to buy/rent spaces which you don't need now but you know will be needed in the future?
This is already the status quo, though, except now you 'punish' corporations and people for succeeding (making a profit on investments, earning a high income etc.). I don't know how to rigorously decide whether it's worse to punish someone for owning land or to punish them for owning things that aren't land, or to punish them for being personally useful to other people (i.e. profiting from their skills and effort rather than from property that is in their name), but intuitively it seems to me that punishing, and thereby discouraging people from being useful is the worst, while punishing people for owning things is not as bad. I'm not sure how society looks when people are adverse to owning land.
>How do you deal with real estate investors?
In what sense would you have to deal with them? Their investments presumably lose most of their value if all present taxes are converted into one (high) land tax.
The finding by EC is that multinational corporations is taxing much lower that corportations in Ireland. If all Irish corporations payed 0.005% in taxes instead of 12,5%, then the EC would have nothing to complain about. However, if Irland did this, I doubt their budget would survive.
Equal treatment of everyone is a critical aspect to prevent corruption and an unfair market. Selectively lowering taxation is illegal, and I don't find that wrong at all.
1. How do they target these companies?
2. Is this the issue then? If it was for all the companies, with no exceptions, would that be allowed?
I'm seriously asking in the hope to get a better understanding, because right now, the way I see it is: As long as they are not breaking any laws, it's their "right" to use any loophole there is, to minimize their taxes (or maximize their profit, depends how you look at it). Is it ethical? Of course not, I'm not arguing about that.
Not all EU countries have the same tax rates so yes, it is allowed to have lower ones. It is OK to have low rates (like Slovakia and some other countries have) as long as the same rules apply to all companies.
Problem with this one is that they didn't and it wasn't a loophole. It was a well understood and by Ireland supported ignorance of existing treaties which have an effect of a law that just finally caught up with them.
Further, yes Ireland can set their own tax rate, however either has to be fairly applied across the board ie every company gets taxed at the same rate. A figure quoted today said Apple were paying £50 tax for every £1,000,000 profit. This is considerably lower than other companies in Ireland were being taxed at. This is the root of the problem here, not that Ireland has low taxes.
I'm taking it from the tact of "it's ethical for two groups to arrive at whatever deal they'd like, as long as no individual is being deprived of his/her rights."
In other words, it doesn't have to be applied across the board to every company at the same rate. If it were, it's unlikely that Apple would have chosen this arrangement with Ireland.
You might argue that the people of Ireland are somehow being hurt by this lower rate of taxation, but the money would have gone to the GOVERNMENT of Ireland, and probably not benefitted the people much at all, except some nominal amount to placate their desires and win popular appeal.
I'm super fringe when it comes to taxes and ethics, though, so... no need to agree with me.
Except Ireland joined the EU and with the agreed to the fair and equitable taxation policies. Simply said the agreement is to tax all businesses alike within your borders. The idea is to promote free trade by preventing state aid. So for example the Irish government cannot give a construction company(A) special tax rate that would be lower than that of another construction company(B) as this would give (A) an economic advantage allowing them to submit lower bids for work than (B). So to ensure a level playing field for all you must treat companies equitably, so corporation tax is a flat rate on profits for the small corner shop to the large multinational.
The money would go to the Irish Government, which isn't some African corruption ridden state, so it would have gone on improving things in Ireland.
For example it costs approx €1bn a year to maintain their water supply. As an austerity measure they have had to recently introduce specific water rates rather than cover it from general taxation. This tax bill (if paid at the time it was properly incurred) could have prevented the need for that for a decade or more, and at a time when there was an economic crisis it would have meant consumers having more money available. Instead it can now only be used by the Irish government to pay off their deficit, which is a long term benefit to the Irish people.
Except the payment would be made by Apple to Ireland and not to the EU. And specifically Ireland can only use it to pay down their deficit. So they are kind of doing Ireland a favour here, Ireland get to claim the tax from Apple but by contesting the original ruling they can try to curry some favour with Apple to prevent them moving their business entirely from Ireland.
To be fair to Apple there wasn't a clear precedent set before this.
There definitely is now though and you can be sure legal teams around the world will be advising senior leadership teams to rearrange their corporate structures accordingly.
The whole situation is a fine line. Look at one of the criteria that Ireland ran afoul of: "the basis of profit determination for companies in a multinational group departs from internationally accepted rules"
Which of course is amusing because there aren't really any internationally accepted rules. Companies like Apple e.g. Ikea, Coke, Google etc all do this and many countries allow it in particular the US.
I think it's fantastic that this precedent has been set. But it is a precedent none the less.
But low tax rates are not "state aid", "aid" is an English word meaning giving something to somebody. "Tax" means the opposite: taking it away.
The EU Commission is now engaged in a rather grotesque power grab in which despite having no mandate to interfere with member tax policies they are attempting to gain control anyway, without treaty change, by redefining low tax rates as a kind of subsidy.
There is no real precedent for this kind of legal abuse - to claim Apple should have anticipated it is absurd.
EU has held for almost two decades that "an effective level of taxation which is significantly lower than the general level of taxation in the country concerned" constitutes "harmful tax competition". The most logical way to undo such unfair benefit is to rule the company to return the unfair benefit it gained with interest. I don't see anything but a welcome measure to level the field for competition.
When advancing wildly heterodox ideas, one is well advised to be prepared to defend them. Do so well, and you may make your audience thoughtful; do so poorly or not at all, and you only make them annoyed.
Yes. To the tune of €13bn.
At the scale Apple operates their legal team should be considering whether the deals they negotiate are legal in all the applicable jurisdictions, not just the local one. The Irish government should also have done a better job, so part of the blame lies with them, but that doesn't free Apple of all responsibility.
In any case, we should be taxing land value. That's harder to avoid: you can't hide land.
You can hide who owns it.