Europe's Apple tax grab to spur US reforms: Lew

September 12, 2016

Europe's order for Apple to pay 13 billion euros ($14.6 billion) in back taxes could provoke US tax reforms and a significant break for firms repatriating offshore earnings, US Treasury Secretary Jacob Lew said Monday.

Lew said high US corporate tax rates drive companies to seek tax havens like Ireland, which offered Apple what the European Commission ruled was an illegally low rate to encourage it to invest there.

While he said that the EC move essentially raided potential US government tax receipts, Lew said the episode should give a boost to efforts to reform the US system.

"I would hope that the idea that a European Commission action will reach into our tax base and take US tax revenues and make them European tax revenues will help trigger this debate about tax reform," Lew said in a talk at the Council on Foreign Relations.

"If losing billions of dollars of our tax base to another authority isn't going to get people's attention, I don't know what will."

Lew has strongly criticized the European action as applying retroactive taxes on a company that had abided by the rules of Ireland, where the US tech giant enjoyed a special effective rate of just 0.005 percent, the European Commission said.

But he has also repeatedly insisted that the Apple profits retained in Ireland are subject to US taxation.

"Retroactively reaching into our tax base is something we find deeply troubling," he said.

"Which doesn't justify the behavior of seeking to avoid taxation," he added.

"I am not going to defend companies that seek either a zero or very low tax rate by taking advantage of tax havens and tax loopholes."

US companies have stockpiled some $2.4 trillion in untaxed foreign-earned profits offshore, arguing that Washington needs to lower the statutory 35 percent rate for them to repatriate the funds to the Untied States.

Lew said he expects Washington to craft a one-off discount for the repatriation of offshore profits in the next year in order to bolster government revenues. The same was done in 2004.

"That will be a windfall," he said.

Explore further: Apple tax bill undermines transatlantic cooperation, Lew says

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5 / 5 (1) Sep 12, 2016
Lew has strongly criticized the European action as applying retroactive taxes on a company that had abided by the rules of Ireland

If they didn't make Apple pay, then it would be a crime without punishment and they'd simply do it again.

Simply telling them not to do it again would be a signal to every corporation and government out there that you can make corrupt tax deals in the EU and get away with it. If you get caught you simply say "sorry", if even that, and you get to keep all the money.

US companies have stockpiled some $2.4 trillion in untaxed foreign-earned profits offshore

The keyword is "foreign earned profits". The taxes that Apple avoided in Ireland don't belong to the US, but to the countries where the profits were actually made. The profits belong to the subsidiary company operating in that country, so the taxes are paid to that country. Apple selling stuff to Europe through a company in Ireland is not a US export.

not rated yet Sep 12, 2016
"Apple selling stuff to Europe through a company in Ireland is not a US export."

Especially since the stuff they sell comes from Foxconn which has several factories in Europe and no factories whatsoever in the US. When you buy an iPhone in Europe, it's likely to be made in Hungary, Slovakia, Czech Republic or Turkey.

So if the devices are made in Europe, Taiwan, India, China... etc. and the company that sells them operates in Ireland, what claim does the US have to any of the money? It's simply that Apple Inc. -could- transfer the cash over to the US to be taxed, but they don't and they don't need to. Such is a multinational corporation.

To see how silly the US tax claim is, imagine if a Swedish company bought another company that operates in the US. Should Sweden then automatically get to tax the profits they make in the US? Should the company have to transfer all their US profits to Sweden?

not rated yet Sep 13, 2016
In more ways than society has comprehended, governments have been surpassed by corporations which are now the more powerful entity
Also, corporations can play governments against each other, such as by seeking the tiniest tax rates. Within the United States, corporations play state governments against each other.

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