The US has itself to blame over offshore tax woes
The sorry saga of the European Commission’s penalty against Apple is the result of a loophole that should have been closed years ago
No one looks good in the sorry saga of the European Commission’s €13 billion (HK$113.5 billion) tax penalty against Apple. On one level, it is perfectly ridiculous. The ruling forces Ireland to collect the massive tax bill it doesn’t want from the iconic American company which doesn’t think it should pay.
The EU says the decades-old tax break Ireland offered Apple was a sweetheart deal that amounted to an illegal subsidy. Dublin claims it was perfectly above board.
The ruling is a perfect example of the European Union’s judicial overreach. Both Dublin and Apple say they will appeal against the ruling.The penalty, while unprecedented, amounts to the revenue Apple generates in a quarter. In any case, the world’s most valuable company is sitting on a cash pile of more than US$230 billion, a large chunk of which is stashed in Ireland.
But, speaking of the cash pile, how did it come to be so large? The answer cuts to the heart of the matter. The money is kept outside the US so it is not taxed – at least not until it is repatriated back to the US. Many of America’s largest multinationals are keeping their overseas profits offshore to the tune of an estimated US$2 trillion. So while they are running away from US taxmen, their cash stashes are unsurprisingly attracting the interest of EU taxmen.
Starbucks, Amazon, Fiat and the German BASF are among multinationals facing a tax crackdown from Brussels.
Washington is angry, ostensibly at the EU for picking on a US company. The cynical view is that what European taxmen get their hands on will be taken from their counterparts in Washington, who surely want their pound of flesh.
The US has only itself to blame. It could have closed the tax loophole years ago. Even now, it could offer tax incentives to encourage companies to send the money back. But with a gridlocked Congress and a presidential election coming, there is little chance of a solution.