On Tuesday this week, the European Commission announced that Apple’s tax arrangements in Ireland were illegal, and that it consequently owed EUR13billion in back-taxes from the past 15 years (https://www.theguardian.com/business/2016/aug/30/apple-pay-back-taxes-eu-ruling-ireland-state-aid)
Not surprisingly, it has provoked outrage from some corners, and lots of bold statements about things are meant to work.
While I don’t pretend to know the specifics, and both Apple and Ireland have said they will be appealing the judgement (I suspect successfully), I did have some thoughts on several of the wider issues raised in the claims.
Can rules be changed retrospectively?: Many (particularly in the business community) are uncomfortable with the idea of changing rules retrospectively. In fact, our justice system has always had the notion that not all contracts are enforceable, for example those made under duress, or those involving an illegal action, and I would be happy to include rules and contracts that are grossly against the common good. It would take some work to get the balance right, and ensure these powers weren’t used unfairly, but I hope that recognition of these powers would lead to companies doing a better job to ensure that their arrangements are not just ‘legal’ but also not against the common good.
Sovereignty of a country’s tax affairs: The case has raised the question of whether a country has total control of its tax affairs. Firstly, we need to appreciate that countries competing with each other to win companies and wealthy individuals by lowering taxes and offering ‘sweetheart’ deals can end up hurting everyone. Under these circumstances, it seems reasonable for countries to disincentivize other countries/companies from doing that, and it does happen (eg US taxation on its citizens’ overseas income, or sanctions against tax havens). However, when you look at what steps they can take, their options aren’t unlimited, and in the case of Apple, the EU may have overstepped the mark in thinking they can force Ireland to retrospectively change their tax rules.
Providing an unfair advantage to one company (or industry): There are lots of instances where governments provide favorable treatment to one industry, or even one company. I can see that there is a cost of this, in terms of fairness (both perception and reality) to other companies/industries and to the public, and I would want to make sure was only done where the benefits clearly outweighed those costs.
What is a fair rate of tax?: There was a time when the this question didn’t make any sense – of course any individual or company would pay as little tax as they could. I am pleased that society is starting to assert its desire for a fairer system, and companies are being criticised where they can’t justify their tax contributions (within each country they operate). Yes, tax affairs are complicated, and occasionally the public outrage is misinformed, but I believe the scrutiny is a positive force. Interestingly, Apple subsequently announced that it will begin repatriating funds next year (and paying tax on it – this has also been a point of contention) – I guess they know how important it is becoming to be perceived as paying a fair rate of tax.