The first part of this discussion focuses on the notorious Apple tax case, which allowed Apple to create the fiction, thanks to a special treatment in Ireland, that it lived nowhere in the world from a tax perspective, even though its profits were managed via a hedge-fund-like operation in Nevada with the funds sitting in New York banks.
Naomi Fowler: Hello and welcome to the Taxcast from the Tax Justice Network. I’m Naomi Fowler. On the Taxcast this month, a big victory against Ireland and Apple’s tax dodging pact which goes back years as the European Union Court of Justice rules it was against EU state aid rules. Here’s EU Competition Commissioner Margherethe Vestager.
Magarethe Vestager: I think it’s a very important step towards tax justice, I think that shows European citizens that actually once in a while, tax justice can take place. And it’s important to me as well. I’m very, very happy with this win. We won the Apple case and it’s final.
Naomi Fowler: Yep, it’s final. Apple must now pay back taxes in Ireland of over 13 billion euros, or more than 14 billion dollars. It’s a big win for the European Commission. We’re going to discuss the implications.
Also on the Taxcast, are banks claims about their financing of fossil fuel companies true, or are they green laundering? (...)
But first, the Apple tax case. Ireland and Apple have lost their appeal against the EU’s order back in 2016 that Apple must pay Ireland 13 billion euros, about 14 billion dollars, in unpaid taxes. They wanted to defend what they thought was a right to shift profits around so they could lower their taxes to pay between 1 percent and as little as 0.005 percent in taxes a year. They didn’t have that right because it’s against EU state aid rules to give selective tax advantages. Here’s economist Joseph Stiglitz of the Independent Commission for the Reform of International Corporate Taxation, or ICRICT for short.
Zorka Milin: Most obviously, I think the EU and especially the visionary competition commissioner I think this is a big win for her, for the commission against tax sweetheart deals, especially in Europe. Um, and also paradoxically Ireland was fighting this tooth and nail, but now they get to keep this 14 billion dollar windfall in revenues!
I also want to add that you know, even though it’s imperfect and incomplete in, in, in some ways, still, I think this is also a win for civil society groups who have been campaigning for such a long time to bring greater tax accountability to companies like Apple, and I want to say that because, you know, we’re not always very good at celebrating our victories and you know, we always tend to look critically at how things could be even better, and let’s just go for the next big thing. But I think this is a really important case that shows we can actually win, even if it’s imperfect, incomplete, and it took ages, more than a decade, it is still some semblance of tax justice and still one that we should celebrate.
Naomi Fowler: Yeah, right. And I mean our EU Competition Commissioner said it brought her to tears. So yeah, maybe we should take that? Tove, what do you think?
Tove Ryding: Yeah, I definitely agree that the European Commission is a big winner. They put a lot of resources into this. If I understand them correctly, they were actually surprised themselves that they won this case because they had several tax related state aid cases that didn’t go so well. So indeed, a big congratulations to them and also to Margrethe Vestager, who has been championing this, and this is the end of her term in the European Commission.
And, as to the broader celebrations, I guess we, especially the European organizations that have been following this case for a long time, are some of the ones that aren’t quite sure that this is a moment for celebration, because a real win for us was never in the cards! I guess we won a bit of transparency into how the transfer pricing system works and that’s actually really rare because most of these things are usually secret. So we saw in this case, there’s one year where Apple’s tax payments are down to 0.005%. So you drop your jaw about how extreme the tax system is. But then when you see what this case was actually about, the European Commission has been trying to force Apple to collect taxes on profits that were generated in countries all over Europe, but also in Africa, the Middle East, and India. So for all the other European countries, but also for our colleagues in the other regions, the big question is why did all that profit only go to Ireland and why can’t any other countries tax this money, especially since Ireland very clearly didn’t want to tax it? So, we won a little insight into how problematic the tax system is, but the, the very clear conclusion is that the problem we have is more than just one rotten apple.
Naomi Fowler: Yeah, some of the countries who that tax revenue belongs to won’t get that revenue, so a lot of treasuries are not going to benefit from this. Ireland didn’t want to benefit from this, but has been forced to now by the courts. Who else are we looking at who are losing out from this ruling? Um, I guess the shareholders would be one, who have been very slow to recognize the risks of profit shifting and turning a blind eye to that. Zorka?
Zorka Milin: Yeah, I agree that, that among the losers we’ve got other countries that should have or could have gotten their share of these tax revenues. Um, and here I, I include in addition to the European countries and, you know, the global South markets, I would also include the United States, and let’s hope that this ruling will be a kick in the pants for these countries to do what they can to fix their own international tax and especially transfer pricing rules so, so they make sure they can’t be taken advantage through profit shifting going forward. Um, and then, of course, obviously, you know, Apple is the big loser, I mean, we could debate how much 14 billion matters to such a huge and hugely profitable company but there’s no question it’s material. And as you say, Apple’s investors, you know, the risk was sprung on them. They were in the dark about these huge tax risks that the company was taking because of a lack of tax transparency. Uh, and it really only came to light through a congressional investigation in, in a series of dramatic tax hearings in the U.S. Senate back in 2013 so yeah, I would say the losers are the company and some of the other governments, as you said, I agree with that.
Naomi Fowler: Yeah, Tove?
Tove Ryding: Yeah it’s a really interesting situation because for once you actually have a weird coalition of big multinational corporations and investors and governments and civil society all shaking our heads at the tax system. Of course, we have been highly concerned about the transfer pricing system for a very long time, not just because it’s open to abuse, but also because there is an unanswered question about how should the right to tax profits be allocated fairly between countries, and now that we have such a big amount of profits ending up in Ireland, you have everyone else, civil society and governments all around the world going, well, this is odd! And at the same time, now we actually have investors and multinational corporations that very clearly see an example of exactly how risky it can be to do tax constructions that are, let’s say, a bit on the creative side. And especially because this case goes back so many years. You really have CEOs and the different types of corporate tax departments that have to sit now and wonder how many of the tax arrangements that we did 20 years ago, 30 years ago are actually safe from scrutiny? And I think that’s the question that we all have now is, okay, this was one company. This was two tax rulings. What about all the others? And I think that’s the big question here in Brussels now as well.
Naomi Fowler: Oh yes, definitely. I mean, the consequences of this ruling now for other companies that were enjoying Irish sweetheart deals and, and not just Irish ones as well, but yeah, they must be quite worried, right Zorka?
Zorka Milin: Yes, exactly. As Tove said, you know, it’s not just one bad apple. There’s plenty of other companies that have historic Irish sweetheart deals, and now they are at legal risk if they are within the 10 year statute of limitations. Now, I should say here, I’m not an EU or an Irish tax lawyer, and this is certainly not tax advice to be clear, but if I had clients in this situation, if I was still in private practice, I would say they should definitely take a closer look, and, you know, strictly speaking, you could say the impact is, is going to be narrow because this exact structure, the double Irish, is no longer possible. By the way, that’s thanks to a combination of tax reforms in Ireland, in the U.S., and also BEPS, all of that was won in response to these kinds of scandals.
So we don’t have this exact kind of structure, but more broadly, you know, I would say it is a sea change because it signals that Brussels can go, they have legal authority to go after the tax laws of member states in these kinds of situations.
Naomi Fowler: So, you know, if you look at Ireland, it said, we don’t give preferential tax treatment to, to companies which is found to, to not be the case, but they didn’t fight against having to take these back taxes, 14 billion dollars for no good reason, right? So the corporations, I mean, you’ve talked a bit about how they might start looking at things a bit differently and thinking, this is a bit, not only in terms of reputation, this is risky, but actually legally and financially, there are big risks here. But what do you both anticipate that perhaps the enabler industry of professionals helping companies do these type of things, governments who have jurisdictions like Ireland, who have been quite big offenders in draining tax revenues from other countries, what do you think they’re going to be doing now after this ruling as a result? Tove first.
Tove Ryding: I think we can see how a lot of the business lobby is responding, including the tax advisors. They emphasize the need for tax certainty, and of course, some of them are also still saying that there’s no longer a problem with large scale corporate tax avoidance, and that we strongly disagree with. But when it comes to tax certainty, they of course emphasize the need for certainty for business and investors.
And we emphasize the need for tax certainty for governments and citizens to make sure that there is revenue coming in. But there is an odd point of agreement here that the current international tax system is simply one big chaotic tombola, you never know what the result is going to be in the long run and everyone’s actually really uncomfortable with this. So it creates a much needed and very healthy discussion about how can we create tax certainty? (...)
Naomi Fowler: Yeah, we’re going to talk about the United Nations where we all think that they should be focusing their efforts, but let’s go to Zorka and ask her for her take on how the whole industry really, involved in these type of activities, how they’re going to react in your view.
Zorka Milin: Yeah, I mean, um, talk about enablers, they’ll keep enabling, but they’ll just find another way, and I have to say, as a former international tax lawyer, it’s been really disappointing to see the reaction from the tax profession. From what I’ve seen, there’s a consensus that this is just a terrible legal decision in the Apple case. You know, there’s been some disagreement on how big a deal it is, some lawyers think it doesn’t really matter much anymore because these exact kinds of schemes are now basically over. Although it could, as we said a minute ago, it could affect some of those previous schemes. Other lawyers are saying it’s just outrageous that the Brussels Competition Authority can override domestic tax laws but, you know, whatever the exact stakes are, the consensus seems to be it’s just a terrible decision. And while that’s not necessarily surprising, I find it disappointing because it shows that tax lawyers are still kind of trapped in their role and they’re failing to see the bigger picture here. I mean, we had a company that was setting up subsidiaries that are not tax resident anywhere at all, and they got their effective tax rate down to, what, basically nothing, 0.005%. And that kind of outcome is just so manifestly unjust. And there is no way a tax system that produces such an outrageous outcome could be defensible or sustainable. And of course, yes, Tove was talking about certainty. We need, you know, we need to have nice things like rule of law and stability and certainty. And I’m all for that, I’m a lawyer, but this is just not the way. And the Apple tax case is up there with one of the most egregious corporate tax scandals I’ve ever seen. I think it’s time that we just need a different kind of law. But I’m an optimist, I will try to be an optimist. And so I think things are going in the right direction slowly but surely, and we have so much momentum and so many opportunities for real tax reform, both international, UN is surfacing, but also domestically and unilaterally, including here in the U.S. where we focus.
Magarethe Vestager: I think it’s a very important step towards tax justice, I think that shows European citizens that actually once in a while, tax justice can take place. And it’s important to me as well. I’m very, very happy with this win. We won the Apple case and it’s final.
Naomi Fowler: Yep, it’s final. Apple must now pay back taxes in Ireland of over 13 billion euros, or more than 14 billion dollars. It’s a big win for the European Commission. We’re going to discuss the implications.
Also on the Taxcast, are banks claims about their financing of fossil fuel companies true, or are they green laundering? (...)
But first, the Apple tax case. Ireland and Apple have lost their appeal against the EU’s order back in 2016 that Apple must pay Ireland 13 billion euros, about 14 billion dollars, in unpaid taxes. They wanted to defend what they thought was a right to shift profits around so they could lower their taxes to pay between 1 percent and as little as 0.005 percent in taxes a year. They didn’t have that right because it’s against EU state aid rules to give selective tax advantages. Here’s economist Joseph Stiglitz of the Independent Commission for the Reform of International Corporate Taxation, or ICRICT for short.
Joseph Stiglitz: Apple in Europe claimed that all the profits they made in Europe were made in Ireland. That all the economic activity that occurred all over Europe was actually due to Ireland. And then they had a quirk in the Irish law where they said that what went on in Ireland was controlled by Silicon Valley so they didn’t have to pay any taxes in Ireland. And they gave Ireland just a little bit for the service of avoiding taxes. That was the only service that Ireland provided, really, was tax avoidance.Naomi Fowler: And the initial motivation for Apple to use Ireland was to shift their taxable profits out of the United States, too. Ireland’s been in the bizarre position of fighting against receiving billions of euros in order to try to protect their client, Apple, and presumably all the other companies who’ve also used Ireland’s jurisdiction to shift profits over the years. To discuss all of this I’m with Tove Ryding, tax coordinator at the European Network on Debt and Development, Eurodad in Europe, and Zorka Milin, former tax lawyer and policy director at the FACT Coalition in the United States, that’s the Financial Accountability and Corporate Transparency Coalition. We started off by talking about their initial reactions to the news. Here’s Zorka Milin first.
Zorka Milin: Most obviously, I think the EU and especially the visionary competition commissioner I think this is a big win for her, for the commission against tax sweetheart deals, especially in Europe. Um, and also paradoxically Ireland was fighting this tooth and nail, but now they get to keep this 14 billion dollar windfall in revenues!
I also want to add that you know, even though it’s imperfect and incomplete in, in, in some ways, still, I think this is also a win for civil society groups who have been campaigning for such a long time to bring greater tax accountability to companies like Apple, and I want to say that because, you know, we’re not always very good at celebrating our victories and you know, we always tend to look critically at how things could be even better, and let’s just go for the next big thing. But I think this is a really important case that shows we can actually win, even if it’s imperfect, incomplete, and it took ages, more than a decade, it is still some semblance of tax justice and still one that we should celebrate.
Naomi Fowler: Yeah, right. And I mean our EU Competition Commissioner said it brought her to tears. So yeah, maybe we should take that? Tove, what do you think?
Tove Ryding: Yeah, I definitely agree that the European Commission is a big winner. They put a lot of resources into this. If I understand them correctly, they were actually surprised themselves that they won this case because they had several tax related state aid cases that didn’t go so well. So indeed, a big congratulations to them and also to Margrethe Vestager, who has been championing this, and this is the end of her term in the European Commission.
And, as to the broader celebrations, I guess we, especially the European organizations that have been following this case for a long time, are some of the ones that aren’t quite sure that this is a moment for celebration, because a real win for us was never in the cards! I guess we won a bit of transparency into how the transfer pricing system works and that’s actually really rare because most of these things are usually secret. So we saw in this case, there’s one year where Apple’s tax payments are down to 0.005%. So you drop your jaw about how extreme the tax system is. But then when you see what this case was actually about, the European Commission has been trying to force Apple to collect taxes on profits that were generated in countries all over Europe, but also in Africa, the Middle East, and India. So for all the other European countries, but also for our colleagues in the other regions, the big question is why did all that profit only go to Ireland and why can’t any other countries tax this money, especially since Ireland very clearly didn’t want to tax it? So, we won a little insight into how problematic the tax system is, but the, the very clear conclusion is that the problem we have is more than just one rotten apple.
Naomi Fowler: Yeah, some of the countries who that tax revenue belongs to won’t get that revenue, so a lot of treasuries are not going to benefit from this. Ireland didn’t want to benefit from this, but has been forced to now by the courts. Who else are we looking at who are losing out from this ruling? Um, I guess the shareholders would be one, who have been very slow to recognize the risks of profit shifting and turning a blind eye to that. Zorka?
Zorka Milin: Yeah, I agree that, that among the losers we’ve got other countries that should have or could have gotten their share of these tax revenues. Um, and here I, I include in addition to the European countries and, you know, the global South markets, I would also include the United States, and let’s hope that this ruling will be a kick in the pants for these countries to do what they can to fix their own international tax and especially transfer pricing rules so, so they make sure they can’t be taken advantage through profit shifting going forward. Um, and then, of course, obviously, you know, Apple is the big loser, I mean, we could debate how much 14 billion matters to such a huge and hugely profitable company but there’s no question it’s material. And as you say, Apple’s investors, you know, the risk was sprung on them. They were in the dark about these huge tax risks that the company was taking because of a lack of tax transparency. Uh, and it really only came to light through a congressional investigation in, in a series of dramatic tax hearings in the U.S. Senate back in 2013 so yeah, I would say the losers are the company and some of the other governments, as you said, I agree with that.
Naomi Fowler: Yeah, Tove?
Tove Ryding: Yeah it’s a really interesting situation because for once you actually have a weird coalition of big multinational corporations and investors and governments and civil society all shaking our heads at the tax system. Of course, we have been highly concerned about the transfer pricing system for a very long time, not just because it’s open to abuse, but also because there is an unanswered question about how should the right to tax profits be allocated fairly between countries, and now that we have such a big amount of profits ending up in Ireland, you have everyone else, civil society and governments all around the world going, well, this is odd! And at the same time, now we actually have investors and multinational corporations that very clearly see an example of exactly how risky it can be to do tax constructions that are, let’s say, a bit on the creative side. And especially because this case goes back so many years. You really have CEOs and the different types of corporate tax departments that have to sit now and wonder how many of the tax arrangements that we did 20 years ago, 30 years ago are actually safe from scrutiny? And I think that’s the question that we all have now is, okay, this was one company. This was two tax rulings. What about all the others? And I think that’s the big question here in Brussels now as well.
Naomi Fowler: Oh yes, definitely. I mean, the consequences of this ruling now for other companies that were enjoying Irish sweetheart deals and, and not just Irish ones as well, but yeah, they must be quite worried, right Zorka?
Zorka Milin: Yes, exactly. As Tove said, you know, it’s not just one bad apple. There’s plenty of other companies that have historic Irish sweetheart deals, and now they are at legal risk if they are within the 10 year statute of limitations. Now, I should say here, I’m not an EU or an Irish tax lawyer, and this is certainly not tax advice to be clear, but if I had clients in this situation, if I was still in private practice, I would say they should definitely take a closer look, and, you know, strictly speaking, you could say the impact is, is going to be narrow because this exact structure, the double Irish, is no longer possible. By the way, that’s thanks to a combination of tax reforms in Ireland, in the U.S., and also BEPS, all of that was won in response to these kinds of scandals.
So we don’t have this exact kind of structure, but more broadly, you know, I would say it is a sea change because it signals that Brussels can go, they have legal authority to go after the tax laws of member states in these kinds of situations.
Naomi Fowler: So, you know, if you look at Ireland, it said, we don’t give preferential tax treatment to, to companies which is found to, to not be the case, but they didn’t fight against having to take these back taxes, 14 billion dollars for no good reason, right? So the corporations, I mean, you’ve talked a bit about how they might start looking at things a bit differently and thinking, this is a bit, not only in terms of reputation, this is risky, but actually legally and financially, there are big risks here. But what do you both anticipate that perhaps the enabler industry of professionals helping companies do these type of things, governments who have jurisdictions like Ireland, who have been quite big offenders in draining tax revenues from other countries, what do you think they’re going to be doing now after this ruling as a result? Tove first.
Tove Ryding: I think we can see how a lot of the business lobby is responding, including the tax advisors. They emphasize the need for tax certainty, and of course, some of them are also still saying that there’s no longer a problem with large scale corporate tax avoidance, and that we strongly disagree with. But when it comes to tax certainty, they of course emphasize the need for certainty for business and investors.
And we emphasize the need for tax certainty for governments and citizens to make sure that there is revenue coming in. But there is an odd point of agreement here that the current international tax system is simply one big chaotic tombola, you never know what the result is going to be in the long run and everyone’s actually really uncomfortable with this. So it creates a much needed and very healthy discussion about how can we create tax certainty? (...)
Naomi Fowler: Yeah, we’re going to talk about the United Nations where we all think that they should be focusing their efforts, but let’s go to Zorka and ask her for her take on how the whole industry really, involved in these type of activities, how they’re going to react in your view.
Zorka Milin: Yeah, I mean, um, talk about enablers, they’ll keep enabling, but they’ll just find another way, and I have to say, as a former international tax lawyer, it’s been really disappointing to see the reaction from the tax profession. From what I’ve seen, there’s a consensus that this is just a terrible legal decision in the Apple case. You know, there’s been some disagreement on how big a deal it is, some lawyers think it doesn’t really matter much anymore because these exact kinds of schemes are now basically over. Although it could, as we said a minute ago, it could affect some of those previous schemes. Other lawyers are saying it’s just outrageous that the Brussels Competition Authority can override domestic tax laws but, you know, whatever the exact stakes are, the consensus seems to be it’s just a terrible decision. And while that’s not necessarily surprising, I find it disappointing because it shows that tax lawyers are still kind of trapped in their role and they’re failing to see the bigger picture here. I mean, we had a company that was setting up subsidiaries that are not tax resident anywhere at all, and they got their effective tax rate down to, what, basically nothing, 0.005%. And that kind of outcome is just so manifestly unjust. And there is no way a tax system that produces such an outrageous outcome could be defensible or sustainable. And of course, yes, Tove was talking about certainty. We need, you know, we need to have nice things like rule of law and stability and certainty. And I’m all for that, I’m a lawyer, but this is just not the way. And the Apple tax case is up there with one of the most egregious corporate tax scandals I’ve ever seen. I think it’s time that we just need a different kind of law. But I’m an optimist, I will try to be an optimist. And so I think things are going in the right direction slowly but surely, and we have so much momentum and so many opportunities for real tax reform, both international, UN is surfacing, but also domestically and unilaterally, including here in the U.S. where we focus.
by Naomi Fowler, Taxcast via Naked Capitalism | Read more:
[ed. This seems like a big deal. $14 billion isn't exactly chump change, and there's a precedent and incentive now for global financial tax coordination and enforcement. See also: Why does Apple have to pay Ireland $14.4 billion? (Reuters); and, Apple told to pay Ireland €13bn in tax by EU (BBC).]
