Recently, the EU has ruled that Apple owes Ireland €13 billion in back taxes. The CEO of Apple reacted with the sort of indignation only an American can achieve when dealing with non-Americans. Columnists tended to side with Apple on the basis of their ideological biases.
Yet the central issue of taxing corporations is that globalisation and the rise of mega-corporations has not been mirrored by a rise in inter-governmental co-operation. Only such co-operation can deal with the problems.
There are organisations which potentially could resolve some of these issues:
- United Nations (LOL)
- World Trade Organisation
- OECD
- G20
- G8 (or is it G7 again?)
- TTIP, TPP, NAFTA and other bi- or multi-lateral trade treaties
What is needed is some sort of convergence in how different countries deal with these issues. Strides are being made in this direction, but progress is slow (see The Economist, “The €13 billion Bite”, Sept 3, 2016). Of course, the EU is a prime example of this sort of convergence. It does show how difficult the task is. Brexit, of course, is an example of going the other (wrong) way.
The key country is the US. Not only are many of the multi-nationals based in the US, but US tax rules are very much an outlier compared to the rest of the world. For example, the US is the only country which taxes its corporations based on their world-wide activities, not just those in the US. It also has the highest corporate tax rates among the developed countries. Often this is not a problem for most US corporations because the tax code is riddled with exemptions and loop-holes.
However, the loop-holes were developed over a long period, mostly before the rise of the software giants, so few are available to them and they are liable to massive tax bills if they bring the earnings back to the US.
The US is always quick to point out how other countries do not have a “level playing field”, e.g. the softwood lumber dispute with Canada. If Canada’s playing field resembles the prairie in Saskatchewan or the South Downs in England, then the US playing field resembles the Himalayas. Jeremy Warner in the Daily Telegraph (“Brexit ‘shock’ threatens to do far more damage to the European economy than to Britain”, 3 September, 2016) chronicles British resentment of how the US treats European companies :
“In fact, European companies get a far rawer deal in the US than US companies get in the EU. BP was hung out to dry in the wake of the Gulf of Mexico oil spill, with record and totally disproportionate fines and compensation. US companies involved in the same incident got off virtually scot free. At the same time President Obama ramped up the anti-British rhetoric in a manner more reminiscent of the populist Donald Trump than the liberal, free trade progressive be pretends to be.
The same is true of European banks, where fines and damages out of all proportion to the “crime” committed are routinely levied, rather in the manner of an arbitrary tax on foreigners. Those that kick up a fuss are threatened with removal of their dollar clearing licence. That tends to concentrate minds wonderfully. There is no right of reply.”
Canada has similar problems with the US, but worse (e.g. softwood lumber, Keystone XL pipeline).