The European Commission Have Sparked a Revolution Against Corporate Tax Avoidance

The European Commission made a decision yesterday that is likely to revolutionise corporate tax law. To understand this, it’s important to step outside the narrow lens (and self interest) of ‘Ireland Inc’ and consider the global political background, from the EU perspective.

Globalization has made it much easier for footloose capital and international firms to move across borders, and avoid paying tax. This means it’s increasingly difficult to apply the principle that tax should be paid in the country where profits are made. It’s estimated that more than half of the foreign profits made by US firms are booked in tax havens.

In response to this, scholars in international political economy have long argued that to manage the worst effects of globalization, whilst retaining the democratic legitimacy of the state (tax and spend capacity), governments should shift governance up a level, beyond the nation-state.

The EU is perhaps the most successful example of this type of supranational governance in the world. It has an executive arm (the EU Commission) with legislative agenda-setting powers, and a supranational Court. In effect, European integration can be conceptualized as a political response to market globalization. But it has no tax and spend capacity.

The core actor driving the process of integration is the Commission. This was most obvious during and after the Eurozone crisis, where member-states, including Ireland, agreed to delegate more economic governance powers to Europe. This included the two-pack; the six-pack; the macroeconomic imbalance scorecard and the European semester. Lest we forget, the Commission was part of the Troika, who actively intervened in fiscal policies of the state, not least in terms of water charges.

All member-states of the EU have actively delegated sovereignty to the Commission to manage a whole raft of policy areas: agriculture, trade, fisheries, competition, the single market, regulation, health and safety. For members of the Eurozone, this pooling of sovereignty is even deeper, and explicitly includes monetary and fiscal policy competences.

Hence, to suggest the Commission has suddenly started intervening and undermining Irish sovereignty is somewhat disingenuous.

Social democratic oriented economies, such as France, Sweden or Denmark, have always tended to view the Commission as an agent of “neoliberalism“. It is perceived as having a narrow commitment to market liberalization, with no capacity to tax and spend. The implication is that the EU cannot build those social institutions that are necessary to compensate for the negative effects of increased market liberalization.

Liberal market oriented economies, such as Ireland and the UK (and parts of the German polity), have tended to view the European Commission as an agent of bureaucratic interference. It is perceived as a political actor that tries to expand it’s executive powers in those policy areas that should remain at the level of the nation-state: employment, social protection, welfare and taxation. The EU is a single market, and should be designed to reduce the transaction costs of trade, nothing more.

These two competing visions of the EU came to a head yesterday.

But for anyone who spends time in Brussels, it’s been a long time coming. In a world of global capital flows, the argument across European capitals has been that, at a minimum, the EU Commission must ensure tax coordination, to ensure that MNCs pay their taxes where profits are made.

Those governments, such as Ireland, that turn a blind eye, and facilitate corporate tax avoidance, have been increasingly viewed with hostility, as they are effectively robbing European citizens of scare taxable resources. This has often been missed in Ireland, as there has not been a public debate on corproate tax avoidance, and therefore it’s not a salient issue.

The EU response to this growing demand in Europe to stop corporate tax avoidance has always been, well, how? It’s a massive collective action problem that requires an assertive Commission, willing to confront rogue member-states, challenge capital interests, and be open to legal challenge. This is exactly what happened yesterday. The Commission concluded that those tax benefits that enable multinationals to avoid tax is a form of illegal state aid, and falls directly under competition law.

The fight is on.

More precisely, the Commission found that Ireland enabled Apple to avoid taxation on almost all of the profits generated by the sale of Apple products in the EU single market. In effect, Ireland facilitated Apple’s ability to build a colossal stock pile of cash that amount to hundreds of billions of dollars. As the Guardian editorial noted today, this is nothing more than “a rainy day fund for the super-rich“. If the Irish government challenge the Commission’s ruling, they are effectively legitimising this, even though they have closed off the tax loophole that made it possible.

All of the focus within Ireland has been whether the government should take the 15 billion. But again this totally misses the point. It’s not Irelands money. It’s tax that should have been paid in Portugal, Greece, Spain, Germany, France and other member-states of the EU, who, like most European countries implementing austerity, are pretty cash strapped.

This is why Ireland has been rightly called out.

In essence, it’s a distributional conflict. Ireland has facilitated one of the richest companies in the world to engage in corporate tax avoidance (money that should have been paid to other governments in the EU). In ordinary language use, this would be called theft.

In responding to the Commission, a clever strategy by the government would have been to accept the ruling; highlight that they have closed off the tax loophole; admit they are in a bit of a legal bind now; and then focus on what really matters in the long run for high-tech FDI: the human capital externalities of thick labour markets, which has been made possible by the process of European integration.

The EU Commission has acted in the general interest of European citizens and business. Hence, it’s decision is being welcomed almost everywhere outside Ireland. The EU Commission has shown that it can act as a supranational counterweight to the untrammelled forces of globalization.


By Aidan Regan

I'm an Assistant Professor at the School of Politics and International Relations, University College Dublin (UCD), and Director of the Dublin European Research Institute (DEI). My research is primarily focused on comparative and international political economy.

32 replies on “The European Commission Have Sparked a Revolution Against Corporate Tax Avoidance”

Great post.

This is where the tax savings go
42% of all wealth including apple shares is owned by the richest 1%

Latest year on year revenue growth for Apple is -14.6% . There is SFA growth because ordinary people are not getting a look in. This is now turning up in S&P revenues. The system is incoherent. The EC’s action on this is just a small part of what is required.

The “richest 1%” may be some pensioner’s either present or future pension.
Anyways,if you’re not one of the 1%, you’re most likely to be one of the “richest 10%”.

Can someone more learned than me help me with a few questions.

1) How was this a special deal!? As in, an unfair advantage, open to no other company. I thought the difference in how companies were defined was available to anyone to exploit.
2) The commission reckons other EU countries could get a slice of this money. How!? If it’s now not a stateless company and in fact an Irish company that’s booking these profits (that should really be booked in California) I don’t understand how the Germans are owed some of that money.
3) What happens if we spend the money and the court case is lost, judge orders us to pay it back and we have no money?
4) How does this impact our debt to GDP numbers?
5) Any chance of more fiscal space arising out of this?

I think you ask a very good question (number 1). In the press release from Vestager, it states the following:

“Tax rulings as such are perfectly legal. They are comfort letters issued by tax authorities….The role of EU state aid control is to ensure Member States do not give selected companies a better tax treatment than others, via tax rulings”.

The question therefore, is where and what are these ‘comfort letters’?

In terms of the Commission pointing out others can get a slice of the money (number 2).

The untaxed profit comes from sales of Apple products in other countries, the proceeds of which were transferred to a head office within an Irish company, which had no jurisdiction. But ultimately the profit (which went untaxed) was generated from the sales iof Apple products in other EU countries.

As they state in the press release regarding the $15bn:

“The amount of unpaid taxes to be recovered by the Irish authorities would be reduced if other countries were to require Apple to pay more taxes on the profits recorded by Apple Sales International and Apple Operations Europe for this period”.

They don’t have this competence to collect this so they are simply leaving it hanging out there. But what they want, and this is their core point, the profit generated has to be taxed, and the treatment provided by Ireland meant it went untaxed.

Aidan, there are many controversial comments in your post, but I think you should be challenged on those that are more extreme.

“EU Commission must ensure tax coordination, to ensure that MNCs pay their taxes where profits are made.”
The Commission ruled yesterday that 60% of Apple’s worldwide profits should be taxed in Ireland. It’s absurd. Apple, like Starbucks, is profitable in large part because of marketing. Their products are not objectively superior to their competitors’ but – rightly or wrongly – consumers are happy to purchase from these companies. The marketing is not done in Cork. The intellectual property has nothing to do with UCC. The profits should not be taxed in Cork. How can you say with a straight face that the Commission is trying to ensure MNCs are paying taxes where the profits are made?

Further, the greater issue here is that Apple’s warchest of profits has not been taxed (yet) because they have not (yet) repatriated it to the United States. That’s the fault of Washington. The tax will be due when they take it home to Apple’s primary profit center, i.e. California. This is loophole was passed by US Congress, I believe in 1986, and there is little Ireland or the EU can do about it. This isn’t Ireland’s fault. If the US had taxation upon accrual rather than repatriation, you would not be reading in The Guardian about Apple’s untaxed retained earnings. Again, this is not Dublin’s fault.

“blatant corporate tax avoidance (money that should have been paid to other governments in the EU)”
You are switching evasion and avoidance, likely intentionally. You’re making a moral play, not a legal or academic argument. As you well know tax avoidance (blatant or otherwise) is by definition legal. Tax evasion is not. What is your justification for saying these taxes should be paid in the EU? It can only be that you think the EU has some moral right, not yet enshrined in law, to these profits. Ireland/the EU/we do not have the right to these profits by just about any reasonable economic or legal basis.

Enda H,

You conveniently left out the first part of the sentence you quote (you incorrectly start with a capital letter when there was none, which would suggest I made a statement/assertion). So allow me to quote the full sentence:

“The argument across European capitals has been that, at a minimum, the EU Commission must ensure tax coordination, to ensure that MNCs pay their taxes where profits are made”.

Hence, my point was that this is the argument increasingly put forth by governments across European capitals. I’m not sure how to respond to someone who thinks that this argument is extreme. It’s surely a standard principle of international tax law?

“How can you say with a straight face that the Commission is trying to ensure MNCs are paying taxes where the profits are made?”

I don’t say this. This is precisely the point; it’s not happening. But this is what needs to happen. Ireland has been penalised for facilitating the fact that it doesn’t happen. As you say, it’s absurd to think 60% of Apples profits should be taxed in Ireland. Why then did all that profit from sales transfer into Ireland? Precisely because of the double-Irish tax law, which is now closed.

“blatant corporate tax avoidance (money that should have been paid to other governments in the EU)” …”You are switching evasion and avoidance, likely intentionally. You’re making a moral play, not a legal or academic argument”.

I know in Ireland that it makes some people uncomfortable to acknowledge the following fact:

“Apple Sales International recorded profits of US$ 22 billion (c.a. €16 billion[1]) but under the terms of the tax ruling only around €50 million were considered taxable in Ireland, leaving €15.95 billion of profits untaxed. As a result, Apple Sales International paid less than €10 million of corporate tax in Ireland in 2011 – an effective tax rate of about 0.05% on its overall annual profits”.

Are you trying to tell me with a straight face that this is not blatant corproate tax avoidance?

“You conveniently left out the first part of the sentence you quote (you incorrectly start with a capital letter when there was none, which would suggest I made a statement/assertion).”

Aidan, I quoted you twice. The only quote that starts with a capital letter starts with “EU Commission”.

That aside, your substantive point is that you were laying the arguments out on the table rather than supporting the claim that the Commission is actually taxing things correctly. In that case I was mistaken in thinking you supported the Commission’s position, and I apologize for suggesting as much.

“Are you trying to tell me with a straight face that this is not blatant corproate tax avoidance?”
No, of course not, Apple very clearly avoids taxes. They blatantly avail of provisions of Acts passed by the Oireachtas to lower their tax liability. I am much less convinced they evade taxes.

Nor am I sure what the relevance of tax avoidance is to a discussion on any Commission case on state aid. Tax avoidance is legal. We can turn “Tax Avoidance Activity X” into tax evasion by making better tax law (see 2015), but usually we hope that follows standard legal procedures and do not apply retroactively, even if we think someone is blatantly availing of measures which they are legally entitled to do. Ultimately this decision hinges on the assertion that Apple were given an unfair advantage relative to their competitors in the single market. Do you honestly think that IBM or Microsoft (or Commodore 64 or whoever) would have received different tax treatment – to the detriment of trade between member states – from the Revenue?

I think a lot of this discussion boils down to the wish that large corporations would somehow stop trying to avoid corporate taxes. An honourable desire, no question, but we should be looking to achieve that through better laws and improved enforcement of actual laws, rather than rejoicing at DG Comp trying to open a back-door competence to something they’re not entitled to.

@Enda H

Thanks for this. I agree with a lot of it.

The reason why DG Comp are exercising their powers (to stop corporate tax avoidance) via state aid rules is because it will take decades for any agreement to emerge among member-states. It’s a blunt tool, for sure. But European public opinion is losing patience. Taxation is subject to the unanimity rule in the Council, which means Ireland will simply veto everything, and therefore nothing will happen, absent the Commissions executive intervention. The Commission’s strategy started with Mario Monti. He was the first one to really suggest that tax avoidance is a competition issue. He should know, coming from Italy. Vestager, however, has now, courageously, in my opinion, revolutionised the approach, by applying it to Starbucks, McDonalds, FIAT, and now Apple. The strategy is admirable for its simplicity: facilitating hocus-pocus accounting strategies that enables MNCs to reduce their taxes beyond the national statutory rate is illegal state aid. It’s the same as giving the company a cash subsidy.

A few points.

The Commission is NOT the executive of the European Union. For the most part, the member states are (Article 4.3 TEU). The EU is a unique form of international integration in which the member states have agreed to exercise in common CERTAIN sovereign prerogatives, the institutions of the EU (listed in Article 13.1 TEU) being the means to enable them to do so. What these prerogatives are are listed under Title I of the TFEU “Categories and Areas of Union Competence”. (Were the EU a sovereign federation such as the US, the executive authority would employ millions, including military personnel, defence being one of the key elements of a sovereign state).

Some executive functions have been delegated to the Commission, the most notable being its role as the competition authority for the EU. Others include certain coordinating management functions in relation to various agreed policies e.g. agriculture etc. but the member states remain responsible for executing them.

The Commission has a right of proposal (Article 17.2 TEU) but the deciding authority is the legislature made up of the Council and the European Parliament, acting for the most part under a procedure of co-decision.

National direct taxation policy is NOT one of the prerogatives that the member states have agreed to exercise in common. Insofar as there has been agreement on so doing in matters relating to taxation, notably indirect taxation such as VAT, action is universally governed by unanimity and decision by the Council alone, with some consultation of the European Parliament.

All the institutions are required to act within the powers given to them by the treaties. The question, in this instance, is whether the Commission has done so. Only the institution given the relevant responsibility, the ECJ, can decide the issue.

Insofar as the financial aspects of dealing with the financial crisis impacting countries that have adopted the euro are concerned, these have been dealt with by way of intergovernmental agreement i.e. outside the formal EU framework.

One could go on. The revolution is likely to be postponed.

More is the pity! The fact that such a description is in use, even by the Commission itself, is a reflection of the central failure of communication that is undermining the entire EU project. Put simply, when things are going well, it is all the doing of national politicians, when they are going badly, it is the fault of a mythical executive in “Brussels”, the latter sometimes aiding the process, as in this instance, by going beyond its legal mandate.

Common parlance, however, cuts no ice when it comes to the ECJ.

The European Council, incidentally, is specifically precluded from “exercising legislative functions” (Article 15.1 TEU).

As the saying goes, everyone is entitled to their own opinions but not to their own facts. Only the ECJ can decide the the outcome. The rest is ill-informed noise. Such is the strength of it, however, and the weakness of the current government, it may well result in a fundamental plank of Ireland’s economic development being removed; and most FDI, and the associated jobs and legitimate taxes, with it.

@Aidan Regan. The corporate tax issue can only be dealt with by close international co-operation between countries who trust one another to some extent.You go on about the EU’e role, but you seem to forget that the OECD has been looking at this for some time. This is important as any attempt at co-ordination without involving the USA will not be much use. Has the EU commission so annoyed the US authorities that any joint EU-US initiatives will be stymied?

There is far too much childish grandstanding. The Reverned Fintan O’Toole is the worst of the lot: he should stick to literary criticism

@John Sheehan

I think it is fair to say that Commission is taking the lead on the OECD Base Erosion and Profit-Shifting (BEPS) project, but under the banner of competition law.

The US is committed under BEPS to clamp down on double non-tax-payment, but they are not exactly eager to push it.

Apple is a huge and unapologetic offender. What has emerged this week is a willingness on behalf the Commission to confront Apple. In all likelihood this is a clear signal that it intends to target others too. This is why the government should thread wisely.

From my perspective, if the EU is willing to act as a global agenda setter in the fight against corporate tax avoidance, then all power to them.

Aidan you write:

‘It’s tax that should have been paid in Portugal, Greece, Spain, Germany, France and other member-states of the EU, who, like most European countries implementing austerity, are pretty cash strapped.’

If the tax dodged by Apple had been paid in the appropriate jurisdiction in accordance with the OECD’s BEPS philosophy, I imagine it would have been paid in the USA. This is a profits tax, not a tariff or a sales tax. When a Brazilian firm sells coffee in Ireland the profit gets taxed in Brazil, even if it owns a sales firm in Ireland. If there is a sales tax it gets collected in Ireland by the Irish revenue.

The European Commission claims to be on board for BEPS, so the direction to Ireland to collect tax on worldwide profits of a US corporation is odd. Maybe even ‘bizarre’ (Michael Noonan).

The policy of collecting a low rate of corporation tax as a stimulant to FDI has been augmented through facilitating MNCs to dodge tax altogether in other jurisdictions (in most cases the USA) with loose tax laws. Ireland needs to have a deep think about a new development model to replace tax-laundering, whatever the outcome of this extraordinary case.


Very fair points.

“Ireland needs to have a deep think about a new development model to replace tax-laundering, whatever the outcome of this extraordinary case”.

I agree entirely. This piece in the New Yorker captures it well:

The government have done the real high-tech sectors, which underpin the export economy, a huge disservice. Almost none of the 130 firms that have invested in the internet sector, since Google set up, and which predominately cluster in Dublin, benefit from corproate tax avoidance. On the contrary. Yet it is these firms that provide the high-wage, high-skills jobs.

In fact, from my experience, and I’ve done a lot of semi-structured elite interviews for a separate research project; most government officials don’t understand what underpins the success of Irelands high-tech export sectors. Nor do they understand why Europe is so infuriated.

Last year I brought 30 students to the EU Commission. One student asked a senior and influential technocrat what was likely to happen to Ireland’s approach to corporate tax. He laughed, and said “the writing is on the wall”. This has been coming.

So! Apple is also responsible for the mother of all national financial busts?

“Today, the major players—the U.S., Germany, China, and the U.K.—don’t feel so generous and hopeful. And they get to write the rules.”

They probably would; if they could agree among themselves! Luckily, they don’t.

The Commission must also follow the rules. Ireland has only one way of finding out if it did so. Go to the ECJ. Swapping horses in mid-stream when the river is raging is not a good idea. The market for such an idea is, however, remarkably wide and the outcome a real test of national independence.

But are you not conflating two things here? On the one hand you say:

“The government have done the real high-tech sectors, which underpin the export economy, a huge disservice. Almost none of the 130 firms that have invested in the internet sector, since Google set up, and which predominately cluster in Dublin, benefit from corproate tax avoidance. On the contrary. Yet it is these firms that provide the high-wage, high-skills jobs.”

And the next:

“Last year I brought 30 students to the EU Commission. One student asked a senior and influential technocrat what was likely to happen to Ireland’s approach to corporate tax. He laughed, and said “the writing is on the wall”. This has been coming.”

The first claim is about “tax avoidance” like in the Apple case. The next about our corporation tax rate. Are you claiming the irish govt thinks the first (avoidance) * or second (low taxes) *helps* attract FDI? If the second (our low corporation tax rate) then are they not correct, to some degree?

If this is, as you imply in your second comment, the start of an attack on irish Corp taxes, do we not have Right to object?
Iirc, you made a point in one of your papers (I can’t look it up now) that irelands recover was in significant part being driven by the export sectors, and if we’d listened to Europe during the bailout (ie increasing Corp taxes significantly) we would have undermined the recovery.
So in that case you say domestic preferences should be given priority, but now Europe wide ones should ? (Apologies if I’ve butchered your argument from that paper)
I’m not sure if your objecting to the specific policies vis a vis Apple, or our Corp taxes as a whole ?

* it seems likely to me that on the first case, avoidance, the govt *don’t* think it attracts fdi to any significant degree, but have other motives for these policies.

rock of sense as usual…..and your point re ‘a new development model’ will be ignored by our atrophied pols and bureaucracy…..

The New York Times put it well: “American lawmakers have for years been assailing companies for dodging taxes with overseas maneuvers. But now that the European Union has done something about it by trying to wrest billions of dollars from Apple, those officials have offered a response viewed by many as rife with hypocrisy: collective outrage.”

The Treasury secretary said on Wednesday that legislation that prevents companies from parking income overseas to avoid being taxed in the United States “will see action probably not in my tenure but early in the next administration.”

Former senator Carl Levin, Democrat of Michigan, who was chairman of the Senate Permanent Subcommittee on Investigations when it examined Apple’s use of tax havens in 2013, said the European Commission should fill the vacuum left by lackadaisical tax enforcement in the United States.

Two key witnesses at the Apple hearings in May 2013 supported the EU move.

Reuven S. Avi-Yonah, who directs the international taxation program at the University of Michigan Law School, said that the European Union had a strong case for collecting the taxes from Apple and that if the situation were reversed, Americans would be clamouring to collect taxes from a foreign company.

The LA Times says: “Edward Kleinbard, USC’s peerless corporate tax expert, may have said it best during an appearance Monday on CNBC, a day before the EC issued its widely-anticipated ruling: “The easy days of single-digit tax rates are going to be over.”

An LA Times writer avoids tip-toeing around the issue: “Apple stands accused of rank financial dishonesty, and with good reason.” and “Apple’s defense of this scheme is transparently bogus.”

In his statement on Tuesday, Noonan said: “Ireland did not give favourable tax treatment to Apple. Ireland does not do deals with taxpayers” — mantras of “rules-based” “no special deals” and “transparent” tax system ring a bit hollow in a country where a prime minister delivered Irish passports to Saudi bankers at his home!

It’s interesting that Apple would book sales in India in Cork but not China and it’s important to keep in mind that the OECD’s BEPS project was done at the request of the G-20 — the 19 biggest advanced and emerging economies. It has wide support and apart from the EC, France and Italy, Australia’s tax office has been very active in tackling avoidance.

Until 2013 corporate tax avoidance was almost a taboo subject in Ireland and in the Oireachtas questions were typically dismissed as coming from left-wingers or crackpots.

In early 2009 when President Obama made some reform proposals, IDA Ireland hired a lobbying firm in Washington DC.

The conventional wisdom was that the veto on tax changes in Brussels and gridlock in Washington DC would save the day.

The Irish media generally supported the status quo and broke none of the big stories. After the Apple revelations in May 2013,

The Irish Times called for an Irish PR campaign in the US:

The charges made now need to be countered, speedily and effectively, by both political and diplomatic means.   First, by Government setting out a clear narrative on corporate tax that can be easily understood — at home and abroad — and that rebuts some of the erroneous claims made. Second, through a major diplomatic initiative in the US to ensure there is a better understanding of the Irish position on corporate taxation

Panama Papers: Irish media’s past timidity on tax avoidance/ evasion

Irish economists welcomed the growing upward trend in services exports in the past decade and in 2012 they overtook goods exports for the first time — it reflected “a move up the value chain” and ministers waxed eloquent about innovation and a world-class knowledge economy.

The unmentionable was the impact of tax avoidance; another has been the patenting record.

It should be possible to acknowledge the key role of the FDI sector in modernising the economy while also recognising that the majority of FDI firms spend nothing on R&D and in the other economy a) the OECD notes poor adult skills compared with other advanced countries b) the second-highest percentage on low pay in the OECD area c) only 40% occupational pension coverage in the private sector d) a poor exporting record and few exporting firms.

Finally, Italy’s real GDP per capita has grown by 3.3% in the 20 years to 2015 but Irish Actual Individual Consumption per capita, a proxy for standard of living, was below Italy’s in 2015.

Relative sizes of the shadow economies are factors but the majority in the non-agriculture Irish private sector work in non-exporting firms and there is a big gulf between them and those who have access to policy makers and thrive on FDI and government business.

I have made the point innumerable times, in the discussion of the application of State Aid rules to direct taxation, that the Commission is operating on a the basis of very narrow powers which hinge on the establishment of discrimination between economic operators.

It is helpful that the US has lawyers every bit as versed in EU law as those in the Competition Directorate. (Unfortunately, Ireland has very few). I would refer you to page 6 of the US Treasury White Paper.

The Commission has changed its stance and (i) shifted the focus away from the issue of transfer pricing and (ii) varied its approach on the establishment of “advantage” and “selectivity”. It is most unlikely that the ECJ will follow it on the basis of previous cases, especially as the broader issue of who decides national tax policy is now at the centre of the debate. (A point made very effectively by Michael O’Leary and others but which has still failed to register in some quarters).

When the US stops ploughing its lonely furrow, in the company of Eritrea, in the matter of the fundamental basis for its tax system, we can discuss the matter again. As matters stand, it can still sort out an agreement in relation to the international complications that its system gives rise to but, as the US Treasury points out, Commissioner Verstager has blown the immediate prospects for such an agreement out of the water.

The bigger issue is that tax avoidance on the Apple scale is part of the cocktail that has brought the OECD deflation. The Commission has to do something. The US Government won’t. The status quo cedes not to new Ideas but the massive onslaught of circumstances with which it cannot contend as JK Galbraith noted. The crisis has already delivered an unstable Irish Government.

I posted this link of a 1990 study by the US think-tank National Bureau for Economic Research on another thread.

One would imagine that it is by now outdated. Such is the glacial pace at which changes take place in the US tax system, and none with any fundamental character, it does not appear to be. It is well worth a read and should end any starry-eyed views of the pace with which the issue of agreeing international rules on taxation can be agreed.

Apart from Eritrea (!), the US is the only country to operate a citizenship based system of direct taxation, an approach which also applies to corporations in terms of where they are incorporated.


There were many sceptics including yourself a few years ago about international corporate tax reform but it’s a lot more than an aspiration today.

Byzantine or not, the US enacted significant tax reforms in 1985/86 and there has been a lot of work done on corporate tax proposals.

While CT only applies to 6% of businesses, it accounts for almost 50% of earnings. Of course there are different business interests with the highest rates paid by companies with low exports. Manufacturing accounts for one third of receipts and retail/wholesale and finance another third.

Both parties are in favour of cutting the headline rate, by closing loopholes but the Republicans want an amnesty with a low single digit rate to get companies to return cash that is technically overseas.

There is room for compromise and senators threats so far have been ignored in Europe.

A President Clinton would likely be eager to have reform and funding for infrastructure.

The US effective tax rate is at about 27% comparable with the OECD’s 28% rate (with each country’s tax rate weighted by its gross GDP when computing the average.)

Senators earlier this year asked the Obama administration to consider invoking the 1934 Section 891 of the Internal Revenue Code against the EU, which has never been used.–Warns-EU-with-never-used-82-year-old-law-563

Fascinating post now on Seamus Coffey’s blog where he shows that the EU Commission ruling could actually lead to more companies setting up in Ireland on the basis that – just like Apple – they can now have most of their worldwide income taxed at 12.5% if they set up the structures right. They don’t actually have to have earned that profit in Ireland at all.

But wait … we don’t want that either. Let’s just up our corporate tax rate to 90% to deter any company setting up business in Ireland. In that way we can be ‘whiter than white’ and all those ‘senior and influential technocrats’ will love us.

Beware of the law of unintended consequences …

Excellent Post.

“The EU Commission has acted in the general interest of European citizens and business. Hence, it’s decision is being welcomed almost everywhere outside Ireland. ”

The decision should also be welcomed in Ireland, for a number of reasons.

The calculation of the amount of money due was based on taxing the profits of an Irish legal entity at the 12.5% Irish corporation tax rate. What is wrong with that? It means the Competition Authority explicitly endorses the 12.5% rate.

The counter argument that “Ireland” will end up taxing the majority of Apple’s non-US profits is a canard. If the profits were not ‘routed through’ and Irish legal entity, then this would not be an Irish issue. The Irish system, both legal and taxation rules, permitted the ‘Irish’ registered company to pay tax only on its profits in Ireland, but conveniently allowed the profits made else to be routed through the ‘head-office’ of the Irish registered company, on a non-taxable basis. A ruse that was always going to come a cropper.

The Commission is broadly correct in saying that such a system is anti-competitive, and will more than likely win its case in the ECJ, if it gets that far.

The continuing avoidance of corporate tax, below published rates, is coming to an end and not before time. Ireland needs to get with the program.

The argument that Ireland will lose FDI investment, as per M O’Leary on RTE, is rubbish. Ireland will only lose investment from those companies that believe than 12.5% corporation tax is too high. We are as well off without such companies. In fact as I understand it, the rules have been changed to disbar the practice that Apples was using, and Apple and other companies have already changed their structures.

If Ireland does not move to collect this money, other countries will move to collect it. One way or another Apple will end up paying. Does it makes sense for Paddy to hide at the back of the queue, to a large extent to protect the reputations of Ireland’s multitude of ‘tax-advising experts’, who got Ireland into the mess, and refuse even now to admit that the game is up.

The EC has said we MUST collect. Please collect.

Now that the dossier has been placed firmly in the hands of the legal eagles, this link may be of interest, especially paragraph 5.

This outstanding comment by Colm McCarthy, with the help of Schrodinger’s cat, says it all.

In terms of the big picture, we may have a case here of not seeing the forest for the trees.

Like lots of corporate appeals that start with a lot of bluster, it would not surprise me if Apple decides that washing more dirty linen in public serves no purpose as it accepts that times are changing. Tim Cook has suggested that some “overseas” funds maybe repatriated next year.

Sorry conservatives and vested interests, the big picture here is that even if the court makes an adverse ruling on selectivity in this case, the Ancien Régime is on a respirator and there is no going back!

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