Question

On August 30^th 2016 the business headlines reported that the country of Ireland plans to recover up to 13 billion euros ($14.6 billion) in unpaid taxes from Apple Inc. What do believe are the merits of this case for Apple and is there a lesson for corporations who might consider setting up their headquarters overseas for the purpose of tax avoidance? And what should be expected of these corporate giants now that President Trump has implemented a new tax code?

Answer 1

The background of the case was that the European commission had made a ruling that Ireland had to collect 13 billion euros in unpaid from Apple Inc. The reason sited by the europan commission was that Ireland had extended concessional tax rates to Apple as compared to other businesses. The European commssion stated that this was against therules to be followed by member EU states. It further added that such concessional taxes or tax aid affects the interests of other EU member countries.

Ireland on its part has defended the tax aid citing that it had not done anything illegal. It says Ireland being a small country and if it has to remain a tax attractive destination to attract investments from big tech companies and other multi nationals which is necessary to fuel its economy. Both Ireland and Apple Inc have appealed against the ruling of the European commission.

Now coming to the merits of this case for Apple, a company cannot be penalised by way of back taxes or retrospective taxes when it had paid all the due taxes as per the tax laws that were existent when the business was done. If Apple can prove that it had not flouted any of the tax regulations and done business in that country as per the laws of the country and not for any tax avidance, then it has a point in its favour. However the most important point to be noted is since Apple Inc is a US based company it will be taxed on its global income and whatever taxes it has paid in another country can be claimed as credit from its tax on its global income, provided there is a Double Taxation Avoidance Agereement (DTAA) between the two countries. Also the tax credit can be claimed only at the lower of the tax rates either in the resident/citizen country or the country where income is earned..US and Ireland have a DTAA but US taxes have always been higher than that of Ireland. Since only the lower of the tax rates can be claimed a a credit from the global income, Apple would have got a lesser tax credit on its global income with respect to income earned in Ireland. This implies Apple has already paid the differential tax to the US govt.

Since President Trump has reduced the corporate tax rates to 21% as per the new tax code in line with his America First policy, it will make more sense for the corporate giants to have its facilities in US and manufacture in US and exporting to other countries instead of shifting their head quarters or production base to other countries. This also aids the US economy by providing employment to US citizens and increases the tax revenues for US. It also safeguards the corporate giants from arbitary or back taxes which may be imposed by other countries resilting in long drawn legal process.