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Peter Knight argues that countries have a moral duty to make a fairer system for all
Total political crap. That’s literally what Apple’s CEO Tim Cook thinks of his company’s €13bn tax pickle in Ireland. His reported views may be unusually Trumpian in their bombast but he is quite right. Corporate tax is all about politics, and has nothing to do with moral responsibility.
What’s more, until the world’s politicians stop using national tax systems as bait to attract multinationals, corporations will continue to do their shareholder duty and play one regime against and another to minimise their tax. Given the chance, wouldn’t you?
The Apple story will soon be unfolding in the courts, which will have to decide the rights and wrongs of the EU shock ruling that Ireland must claw back the “unpaid” tax. Apple’s wrongdoing was deemed to be because of the Irish government’s alleged misuse of state aid in support of Apple.
In summary, the European Commission found that the deal Apple had struck with Ireland broke EU rules. Ireland has a corporation tax rate of 12.5% (the US rate is a staggering 35%), but Apple had allegedly reduced this to 0.005% by negotiating a deal with the Irish to sluice its European revenues through Ireland.
Apple, the Irish and US governments are all outraged by the ruling, and the allegations of connivance to get such a sweetheart deal. Ireland says it does not want the money (really?) and Apple says it won’t pay until the matter has been heard by the courts.
In all the hoo-ha, few commentators have pointed out Apple’s double bind. Because of high taxes in the US, it (along with most US-based multinationals) has been hoarding its non-US revenue abroad. Apple’s cash pile is estimated to be $215bn and it has been waiting for tax reform in the US before it brings it back.
After first saying Apple would repatriate the piggy bank if a new US regime reforms (ie, lowers) corporation tax after November’s elections, Cook then said the company would bring it home anyway and has allocated several billion to pay the tax.
The irony of the US government outrage at the Commission’s ruling is that it wants to get its hands on the cash as much as the EU does.
And herein lies the problem that corporations face. Governments the world over are broke, driven into decrepitude by acquiescing to demands for ever-more services of fast-expanding, rapidly ageing populations. This is especially hard-felt by democratic governments because politicians stand no hope of being elected unless they promise to meet every conceivable need of the entitled electorate.
Everyone wants fast trains, super-smooth motorways, cheap energy, big pensions and ever-whiter teeth. And politicians, who think only in micro-seconds and the next silly tweet, are falling over each other to say yes.
Somebody has got to pay for this largesse, and where better to go looking for the cash than in corporate coffers. This is what sparks the ridiculous financial optimisation game where corporations become financial acrobats on the tax high wire, and governments undercut each other to attract the cash generators.
Ireland has played the game very successfully. So has the Netherlands. And the UK has started to do so too, with a relatively low corporate tax rate. Just check your Amazon or Uber receipts and see from which country you have been billed. That will tell you where companies have based themselves for tax purposes.
Big players are the winners
Winners in this game are the big players who can afford the creative accountants and white-shoe lawyers who devise ever-more elaborate schemes to minimise the tax bills of their clients. Winners are the fast-thinking corporations and the governments lucky enough to gather the crumbs. If the EU allegations are true, Ireland was quite happy to take 0.005% and to keep Apple in Ireland: better than nothing, or losing the company to low-country competitors such as Luxembourg or the Netherlands.
There are many losers in this game, mainly the personal tax payers and small businesses who don’t have the skills or cash to perform financial acrobatics. Small businesses are especially hard hit because they pay the full rate, and are gouged by local tax authorities, too.
Critics are quick to make moral arguments about how we should all be paying our taxes. Of course we should, but governments are also under a moral obligation to provide a fair system. At present, governments are so busy trying to undermine their tax competitors that they can't agree on global rules that apply to all.
While this sad state continues, governments will do deals in pursuit of the multinational crumbs and corporate acrobats will swing ever-higher to minimise their obligations. I’m heading for acrobatic school.
Peter Knight is chairman of The Context Group.Peter Knight Apple Corporate tax European Commission government