Back in 1726 Daniel Defoe listed death and taxes as the two certainties of life. Turn forward the hands of time and one of them no longer looks that inevitable.
Or at least so it seemed.
American multinational Apple had a nice deal in place with the Irish government to pay just 1% in taxes, which gave them special treatment over other businesses.
This week the European Commission deemed that agreement illegal and ordered Apple to pay back £11bn in taxes.
In a press release the Commission states the iPhone company undercut their tax deal even further to a degree where it only transferred a meagre 0.005% to the Irish Treasury in 2014.
Yet somehow Apple gets to act like the aggrieved party here. Its CEO Tim Cook released a statement of his own expressing his indignation at the verdict.
Richard Murphy of the Tax Research UK blog, however, calls Apple’s reaction little more than bluster on the Telegraph‘s website:
“All the talk from Apple is actually bluster from a company that’s been found out to be not breaking the law but simply trying to get round the law, and from a country – Ireland – which has helped it do that and which has also now been found out.”
But wait, where has all that money gone that was meant to be paid to the Irish government?
“Apple has got over 200bn in cash and mere cash at the moment in its accounts. A lot of that is in Bermuda where it is precisely because it’s being untaxed. Particularly that money came from Europe, through Ireland.”
Opportunists in the UK were quick to offer their hospitality to the US company. Apparently Downing Street is considering wooing Apple with further cuts to corporation tax.
I consider this terribly short-sighted. I don’t have the illusion Starbucks moved its headquarters from the Netherlands (where it received ‘unduly reduced’ tax bills) to Britain just so it could contribute more to society.
All you do is fuel these big corporations’ sense of entitlement to special rights and place them in a power vacuum where they are no longer bound by the same rules as everyone else.
It’s pretty clear that multinationals would rather share their winnings with shareholders in terms of dividends than with society as a whole in the form of taxes.
But when you’re the second biggest company in the world, why can’t you do both? At the very least you should be able to pay the same rate other businesses are expected to cough up.
I think it’s a good thing when a government – in this case a supranational one – finally cracks down on tax avoidance. ‘Pay your taxes where you earn your money’ should be an indisputable practice.
And it’s obvious why the Commission would go after the big fish. Apart from they’re being more skilled at moving their money around, it’s also the best way to set a precedent for other companies.
I agree with Daily Reckoning editor Ben Traynor that rather than the money, the legal battle is probably more about showing who’s boss.
It’s hard to argue differently when the Commission has recently investigated tax deals of other big multinationals like Amazon, McDonald’s, Starbucks, and Fiat.
Clearly there’s global competition going on and big business will do whatever it can to extract the best deal it can get.
At the same time I feel if no one ever stands up to these corporations then it’ll make them far too powerful. We’d be moving to a society in which CEOs dictate terms to governments even more than they already do. This can only corrode society even further.
Apple went out of its way to pay effectively nothing in tax. You can call it loopholes, creative accounting, or ‘bending the rules’ but I don’t think this should be the norm.
The most worrying aspect of this episode is that we’re now seeing a number of giant companies that feel they’re bigger than society. They don’t feel the need to play by the rules everyone else has to abide by.
Companies like Apple will keep on trying to find ways to keep more and more to themselves, ignoring their social responsibility.
It all makes me think of a passage in John Steinbeck’s The Grapes of Wrath when banks kick farmers off their land after a bad harvest:
“The monster has to have profits all the time. It can’t wait. It’ll die. No, taxes go on. When the monster stops growing, it dies. It can’t stay one size.”
Just like governments have let banks grow too big to fail, something similar seems to have happened with a lot of other multinationals.
These “monsters” have grown so big they demand a special diet of bespoke tax deals.
Small wonder the European Commission wants to wean them off such fodder.