Apple Tax: Why the EU are right

The European Union has demanded that Apple pay €13 Billion to Ireland in unpaid tax. Obviously this saga is going to on for a while, therefore it seemed mandatory to do a blog post about it.

 

Corporation tax payed in every European Union country is different. This is because the EU is a monetary union and not a fiscal union. In the UK its 20%, in Germany its 30%, in USA its 40%, however in Ireland it’s 12.5%. (The EU average is 22%). But Apple haven’t even paid 1% to the Irish government in the last few years:

[In 2011], for every million in profits, it [Apple] paid just €500 in taxes. This effective tax rate dropped further to as little as 0.005% in 2014 which means that even less was paid in taxes – it was €50 euros per €1m in profits.

-Margethe Vestager,

The problem isn’t that the rates or corporation tax are different, but that Ireland have allowed Apple to pay a specific different rate of tax. This gives apple an unfair advantage, especially in the single market and has been deemed by the European Commission as “Illegal State Aid”.

The 13 Billion is a significant amount for Ireland. That is all the healthcare budget or 66% of the social welfare bill. It also represents a quarter of Apples profits in 2015. While Apple are obviously upset, so are the Irish. Michael Coonan, Irish minister of finance, disagrees profoundly with the verdict. So why are the Irish so upset?

Ireland is already seen as a bit of a tax haven. Many businesses use it for the lower tax rate and access to the single market. Apple hires around 5,500 people in Ireland. The Irish are no doubt worried that this story will deter future investors from the idea that they are a secure tax haven. The Irish government believe that this could lose them investment from overseas. Apple has also threatened job losses, however as Ireland has one of the lowest corporation tax rates in the single market, when the cost of relocation and redundancies is considered, it’s highly unlikely that they will move and unlikely that redundancies will occur. It is most likely nothing more than an empty threat, which one can always expect in such a situation.

Noonan.jpg
Irish finance minister Michael Noonan

The USA are also upset. They are looking out for their own businesses and interests. Politicians in America seem to need to back up big corporations, particularly in high profile cases such as this.

A concern that many people have is that this is the first step towards the European Union controlling tax rates of all of its member states. This is not what they’re doing. They are stopping illegal state aid where the country allows one company to pay far less than the standard corporation tax rate of the nation. There is a long way between doing that and setting the same tax rates for everyone. However, the concern is somewhat reasonable.

Opinion Time

It is right that the EU demand that Apple repay their taxes. While the right amount of tax that should be payed is debatable, the fact that a company can pay basically no tax makes the market unfair and distorted. A competitive market is generally better for everyone, however giving a big multinational company an unfair advantage compared to the alternative companies in the single market and in Ireland is both economically and morally wrong

For too long, globalisation has lead to companies lowering their tax rates in order to attract investment, doing little to improve the quality of life for the poorest, however the aiding of a certain company does take it too far and it is fantastic that a political body is finally standing up to a big corporation and saying “No, you can’t do that”. There is suddenly a fightback against the bad side of globalisation.

The already low rate means  that there will be little economic impact on Ireland as multi-national companies want to be part of the single market. They also get a 13 billion euro fiscal boost from the reparations. It is disappointing that Ireland are so incredibly desperate that they aren’t even prepared to ask for an already low level of corporation tax. It shows a lack of caring about their own citizens and more interest about getting cosy with corporations.

-Swift Economist

 

 

Sources:

http://www.bbc.co.uk/news/business-37220799

https://home.kpmg.com/xx/en/home/services/tax/tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html

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