Read more: Will Britain profit from the EU ruling on Apple's taxes?
On 30th August, the European Commission ordered Apple to pay €13bn (£11bn) in taxes, plus interest, to Ireland. It ruled that the country, Apple’s European base, granted the company illegal benefits, reducing its tax bill between 2003 and 2014. The Commission maintains this violated the state-aid rules designed to provide a level playing field across the European Union, which outlaw favourable treatment towards companies by individual member states. Competition commissioner Margrethe Vestager imposed the largest penalty yet in a three-year long crackdown.
Ireland, evidently willing to forego the tax revenue to keep the company within its borders, is appealing the decision. Apple CEO Tim Cook dismissed the ruling as “political crap” and vowed to push ahead with plans to expand in Cork. Apple also issued a statement: “The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process... At its root, the commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money.”
Irrespective of the rights and wrongs of its case, Apple has identified part of the problem. Levels of taxation have long been debated, but in today’s world, the issues have expanded to include who imposes tax, where it goes and who is ultimately accountable and to whom. Money is not the only issue—democratic accountability is also at stake.
Ever since the American War of Independence, with its rallying cry of “no taxation without representation,” the idea that taxation should only be undertaken with the involvement of those being taxed has been fundamental to democratic government. In the UK, control over taxation has always been a cornerstone of the parliamentary system. However, the rise of multinationals has broken links and allowed some of the world’s largest corporations to avoid tax on a scandalous scale.
Apple’s arrangement in Ireland is instructive. Products were sold in Europe, the Middle East, India and Africa by Apple Sales International (ASI) in Ireland. But the system allowed only a fraction of ASI’s profits to be allocated to its Irish branch and therefore taxed. The vast majority of the profits were allocated to a “head office,” which was not based in any country and, with no employees or premises, effectively didn’t exist; these profits were completely untaxed.
The sums involved are staggering. The European Commission calculates that in 2011, ASI recorded profits of €16bn. Yet only €50m were taxable in Ireland, resulting in Apple paying less than €10m in tax, or 0.05 per cent of its profits—falling to 0.005 per cent in 2014.
Apple is not the only offender; other multinationals such as Microsoft and Starbucks have been criticised too. In the UK, Google has also come under fire for its tax affairs. The company insists that its £4.6bn worth of sales to British advertisers are conducted by its 5,000-strong workforce in Dublin with little or nothing to do with the UK. These matters are largely determined by the UK’s tax treaty with Ireland, which follows a template set out by the Organisation for Economic Co-operation and Development (OECD). However, the OECD admits the tax rules are now wilfully abused, with multinationals shifting profits and eroding tax receipts to a cost of up to £160bn a year, or 10 per cent of global corporation tax revenues.
As Adam Smith wrote in The Wealth of Nations, “the subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.” Today’s multinationals do not make a proportionate contribution towards the support of the governments under which they operate. But they do gain governmental protection—they can access their legal systems. and they benefit from international laws and agreements.
As corporations continue to expand their operations across many more countries, we urgently need a means of ensuring they are democratically accountable for their tax affairs. Such a system must have the support of host countries as well as the international bodies involved. The principles of taxation based on the ability to pay and of no taxation without representation emerged as a result of the industrial revolution. We now need a new set of principles and practices for the globalisation and communications revolutions.
On 30th August, the European Commission ordered Apple to pay €13bn (£11bn) in taxes, plus interest, to Ireland. It ruled that the country, Apple’s European base, granted the company illegal benefits, reducing its tax bill between 2003 and 2014. The Commission maintains this violated the state-aid rules designed to provide a level playing field across the European Union, which outlaw favourable treatment towards companies by individual member states. Competition commissioner Margrethe Vestager imposed the largest penalty yet in a three-year long crackdown.
Ireland, evidently willing to forego the tax revenue to keep the company within its borders, is appealing the decision. Apple CEO Tim Cook dismissed the ruling as “political crap” and vowed to push ahead with plans to expand in Cork. Apple also issued a statement: “The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process... At its root, the commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money.”
Irrespective of the rights and wrongs of its case, Apple has identified part of the problem. Levels of taxation have long been debated, but in today’s world, the issues have expanded to include who imposes tax, where it goes and who is ultimately accountable and to whom. Money is not the only issue—democratic accountability is also at stake.
Ever since the American War of Independence, with its rallying cry of “no taxation without representation,” the idea that taxation should only be undertaken with the involvement of those being taxed has been fundamental to democratic government. In the UK, control over taxation has always been a cornerstone of the parliamentary system. However, the rise of multinationals has broken links and allowed some of the world’s largest corporations to avoid tax on a scandalous scale.
Apple’s arrangement in Ireland is instructive. Products were sold in Europe, the Middle East, India and Africa by Apple Sales International (ASI) in Ireland. But the system allowed only a fraction of ASI’s profits to be allocated to its Irish branch and therefore taxed. The vast majority of the profits were allocated to a “head office,” which was not based in any country and, with no employees or premises, effectively didn’t exist; these profits were completely untaxed.
The sums involved are staggering. The European Commission calculates that in 2011, ASI recorded profits of €16bn. Yet only €50m were taxable in Ireland, resulting in Apple paying less than €10m in tax, or 0.05 per cent of its profits—falling to 0.005 per cent in 2014.
Apple is not the only offender; other multinationals such as Microsoft and Starbucks have been criticised too. In the UK, Google has also come under fire for its tax affairs. The company insists that its £4.6bn worth of sales to British advertisers are conducted by its 5,000-strong workforce in Dublin with little or nothing to do with the UK. These matters are largely determined by the UK’s tax treaty with Ireland, which follows a template set out by the Organisation for Economic Co-operation and Development (OECD). However, the OECD admits the tax rules are now wilfully abused, with multinationals shifting profits and eroding tax receipts to a cost of up to £160bn a year, or 10 per cent of global corporation tax revenues.
As Adam Smith wrote in The Wealth of Nations, “the subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.” Today’s multinationals do not make a proportionate contribution towards the support of the governments under which they operate. But they do gain governmental protection—they can access their legal systems. and they benefit from international laws and agreements.
As corporations continue to expand their operations across many more countries, we urgently need a means of ensuring they are democratically accountable for their tax affairs. Such a system must have the support of host countries as well as the international bodies involved. The principles of taxation based on the ability to pay and of no taxation without representation emerged as a result of the industrial revolution. We now need a new set of principles and practices for the globalisation and communications revolutions.
