TAXI: Europa

According to the European Commission, Apple made more than €50 Billion over the 2012-2014 period on the European markets. It took advantage of the single market to repatriate all its profits to Ireland, where it negotiated paying less than 0.01% in taxes rather than the 12.5% rate applied to other companies. This is unfair. The Monti report on own resources suggests only the Commission can make large companies pay their due for taking advantage of the single market it built. This might allow financing urgently needed tasks such as welcoming refugees and screening migrants at its external borders.

When reading this post pse play in the background the metallic “I want Money” by the Flying Lizards (1979 – 2’45”).

 

A bad Apple?

Based on data obtained by the US Congress in an audition, over the 2009-2011 period, Apple made $38 Billion worldwide. It paid only $21 million in taxes, i.e. 0.06%, of corporate taxes.

 

It took an US Congress audition to reveal the efficiency of Apple Tax shelters
It took an US Congress audition to reveal the efficiency of Apple Tax shelters

According to the Commission, Apple made more than €100 Billion over the 2012-2014 period. It took advantage of the single market to repatriate all its profits to Ireland, where it negotiated paying less than 0.01% in taxes rather than the 12.5% rate applied to other companies.

 

Apple earned some $100 billion in 2012-2014
Apple earned some $100 billion in 2012-2014

This is unfair. Professor Fuest, from the Ifo Institute in Munich, explained on 1st February at Bruegel, the Brussels based think-tank, how Apple justified their apportioning of revenues between the US and the EMEA (Europe, Middle-East and Africa) zone, how it attributed all its revenue to a company based in Ireland and how it concluded a deal with Ireland on how to tax the estimated €50 Billion it made in Europe these last 3 years.

 

The Commission bill
The Commission bill

The exact tax rate paid by Apple was not shown, as Ireland and Apple have not disclosed it, but the Commission estimated that, over the last 10 years, it should have paid some €13 billion to the Irish government

Why did Ireland, mired in the debt contracted in 2008 to save its banks, accept such low tax rates? Easy: which finance minister of a small country would have refused the €100 million allegedly paid since by Apple?

More than the full Monti

I have read with care the recent so-called “Monti” report, on the Future Financing of the EU, written by renowned politicians and finance experts, including Eurofederalist leader Guy Verhofstadt, Prof. Fuest (mentioned above) and led by Prof. Mario Monti – former Italian Premier and EU Commissioner for Competition.

The so called EU Corporate Income Tax (CIT) is reviewed in detail, based on the Commission report “Building a fair, competitive and stable corporate tax system”, and in particular to re-launch the common consolidated corporate tax base. A pity this initiative exclusively concerns the coordination of such tax and not the possible use of its revenue for the EU budget.

The Monti report states that such an EU level CIT would be fair as it is directly linked to EUs activities. This is unlike the shares of national income which currently pay for the EU activities, generating the concept of ‘juste retour’ where Member States measure how much of what they pay in the EU kettle, they get back from its contributions to their farmers, regions and researchers (which make for 90% of the EU activities).

A CIT, says the report, would be:

  • Fair in obliging companies to pay taxes over the zone where they make their profits;
  • Effective and simple to collect for larger companies – which have integrated accounting and might even appreciate not having to build complex tax systems anymore;
  • Transparent as it would avoid the now infamous tax rulings;
  • It would eliminate all preferential tax systems and increase democratic accountability
  • It would have European added value in fiscal matters given its close link to deepening the single market and making it fairer;
  • It would respect the subsidiarity principle allowing Member States to regain in fact fiscal sovereignty as they would avoid the current ‘race to the bottom’ of fiscal dumping.

 

Given the very diverse fiscal landscape for corporate taxes and the positioning of a small number of countries at the head of tax competition in this area, political agreement will be difficult, although the numerous recent tax scandals have increased the pressure to act in many Member States. The capacity to convince that such common corporate tax base will bring economic dividends also for these small countries will be essential to find consensus.

The Commission and the ‘Monti’ group envisage the possibility for companies to voluntarily register to the system, except for companies making more than 750 million of consolidated group revenue – worldwide. We would advocate a higher threshold of 1 billion Euro. According to our estimation, based on the Forbes 2000 biggest public companies, taxing the 1917 companies passing this threshold would yield some €90 billion if profits are taxed at 15%: lower than most national rates. And then there are also large private ones, which profits are harder to know.

 

An EU Tax for EU Tasks

The current European mood is much divided between supporters of dismantling the EU and those, much more numerous at 60%, according to the recent Eurobarometer survey on “The Future of Europe, who see in the EU the best way to preserve their quality of life and that of their children. We therefore suggest that the Commission should, when presenting its priorities for the future also address more of what the EU citizens want and expect from it, even if it is not part of its competencies – it would still get most of the blame in case of failure. Still according to the latest Eurobarometer “At least six in ten support more European level decision-making in a range of areas…, fighting terrorism, promoting democracy and peace (both 80%), protecting the environment (77%), promoting the equal treatment of men and women” (73%) as well as for “dealing with migration issues from outside the EU” (71%).

So: more border control, more security and, why not, peace-making. But with the EU having a budget of some €150 Billion, less than 1% of EU’s GDP, who will pay for this? That’s where paying back for using the single market comes into play: each company doing more than €1 billion of consolidated group revenue (or a share of this on the 28 Member States) should be taxed at a rather low rate, but at the EU level.

Applying the Irish Corporate tax of 12.5% to the some €20 billion Apple reported there, according to Euractiv, should already generate 2.5 B€. Tax the 1916 other “Apples” and the European Commission’s basket, 60% bigger than the current one, is ready. Or Apple’s take could – alone – fund 20 years of Frontex border keeping, or a much better one for a few years.

The Commission should propose using the single market’s benefits to address new main EU level tasks. This would allow countering Eurosceptics and scoring European goals as, using the simple but effective vocabulary of President Trump, the current taxation is just unfair.

NB- This post has been discussed with the Union of European Federalists – Groupe Europe. It does not represent views of the Commission (for which I work) or of Stand’Up for Europe (for which I campaign). Re-publishing is possible under Copyleft principles. I would appreciate being quoted and informed.

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  1. Update November 2017
    The Groupe Europe of the UEF tabled a Resolution to the October 2017 UEF Federal Committee. This was discussed, but no amendments were proposed waiting for a debate to be organised to clarify options.
    Here’s the link to the PDF of the proposal https://www.google.be/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&ved=0ahUKEwip34ezpMPXAhUEOxoKHbDgBC4QFgg9MAM&url=http%3A%2F%2Fwww.federalists.eu%2Ffileadmin%2Ffiles_uef%2FFC%2FFC_Paris_2017%2FRESOLUTIONS%2FPC2_1_AM.pdf&usg=AOvVaw1vjpoUAnUeRDnw6EGicHhG

    The UEF Federal Committee, meeting in Paris on 22 October 2017,
    1 “Following to the publication of the Monti report on EU own resources, in January 2017, UEF considers
    2 that making large companies pay their due for taking advantage of the single market the EU built is an
    3 urgently needed reform. This might allow financing urgently needed tasks or the new priorities
    4 presented by President Juncker in his 2017 State of the EU speech. Overall, it would allow the EU like
    5 the Common Market was originally designed, to be financed by ‘rational taxes’ linked to its activities,
    6 rather than by contributions from Member States. This would kill all debates on the so-called “juste
    7 retour” and allow the EU to avoid being submitted to a yearly arm twisting and 7-yearly blackmail by
    8 Member States when defining its budgets;
    9 Observes that
    10- The European Commission on 4 October 2017 referred Ireland to the European Court of Justice
    11 for failing to recover from Apple illegal state aid worth up to 13 billion euro in unpaid taxes for
    12 the past 10 years, as required by its previous decision of August 2016;
    13- In June 2017, it imposed on Google a record penalty of 2.46 billion euro for abusing its web
    14 search position so as to privilege its own “Google Shopping” engine; the current European mood
    15 is positive and more 60% Europeans, according to the recent Eurobarometer survey on “The
    16 Future of Europe” (http://europa.eu/rapid/press-release_IP-16-4493_en.htm) see in the EU the
    17 best way to preserve their quality of life and that of their children;
    18- The European Commission considered 250 million euro unpaid taxes from the online sales giant
    19 Amazon were “undue tax benefits” and illegal under EU state aid rules, inviting Amazon to pay
    20 the back taxes to Luxembourg on 4 October 2017;
    21- The dismantling of own resources since the 1990s has left the EU budget with net balances which
    22 ignore the added value of EU policies and make the concept of European common goods almost
    23 impossible. The reform of EU revenues has been long overdue and British exit provides an
    24 opportunity to put an end to the various rebates on national GNI contributions. Several
    25 proposals to create a new stream of revenue have been put on the table by the High Level Group
    26 on own resources (“Monti report”) in January 2017;
    27- In February 2013, the European Commission proposed a directive implementing an enhanced
    28 cooperation for a tax on financial transactions which however got bogged down in negotiations
    29 between the 11 Member states concerned;
    30 Considers that
    31- the Commission should, when presenting its priorities for the future also address more of what
    32 the EU citizens want and expect from it, even if it is not part of its competencies – it would still
    33 get most of the blame in case of failure;
    34- the EU budget of some 150 billion euro is less than 1% of EU’s GDP but actual beneficiaries of
    35 the single market should contribute;
    36 – each company doing more than 1 billion euro of consolidated group revenue (or a share of this
    37 on the 28 Member States) should be taxed at a rather low rate, but at the EU level;
    38- applying the Irish Corporate tax of 12.5% to the some 20 billion euro which Apple reported in
    39 that country (http://www.euractiv.com/section/trade-society/news/apple-ireland-lines-of-
    40 defence-diverge-in-state aid-case/), should already generate 2.5 billion euro; taxing the 1916
    41 other “Apples” and the European Commission’s basket would grow by 60%. Or Apple’s take
    42 could – alone – fund 20 years of Frontex border keeping, or a much better one for a few years.
    43 Urges the European Commission and the Member States to:
    44 1 Support the Estonian proposal of taxing web companies as a function of their “virtual permanent
    45 establishment”, whereby digital firms should pay taxes in countries where they have a “significant
    46 digital presence”;
    47 2. Propose that all corporations earning more than 1 billion euro in revenue from the EU single
    48 market, pay a modest levy (i.e. 10 to 20%) of this overall revenue directly to the European Union.
    49 This would allow countering Eurosceptics and scoring European goals as, using the simple but
    50 effective vocabulary of President Trump, the current taxation system is just unfair.

    EXPLANATORY STATEMENT
    Based on data obtained by the US Congress in an audition, over the 2009-2011 period, Apple made $38 Billion worldwide. It paid only $21 million in taxes, i.e. 0.06%, of corporate taxes. According to the Commission, Apple made more than €100 Billion over the 2012-2014 period. It took advantage of the single market to repatriate all its profits to Ireland, where it negotiated paying less than 0.01% in taxes rather than the 12.5% rate applied to other companies.
    It all started with the ‘Lux Leaks’ scandal end of 2014, when the International Consortium of Investigative Journalists denounced Luxembourg’s tax rulings set up by PricewaterhouseCoopers from 2002 to 2010 to the benefits its clients1. Since then and with an increasing intensity this summer the so-called GAFAs (Google, Apple, Facebook and Amazon), the web-based unicorns which are establishing monopolies across the world, have been attacked in European (and US) media:
     In August the Guardian reported “Amazon paid just €16.5m (£15m) in tax on European revenues of €21.6bn (£19.5bn) reported through Luxembourg in 2016.”2 – A 0.1% rate on revenues – profits were not disclosed.
     Still in August, the French minister for Finance Bruno Le Maire implemented the new President Macron’s plan to tax global companies. It started by accusing AirBnB of making billions worldwide, hosting 10 million visitors in France alone – yet paying only 100.000 euro in taxes to France3. This
    1 https://en.wikipedia.org/wiki/Luxembourg_Leaks
    2https://www.theguardian.com/technology/2017/aug/10/amazon-uk-halves-its-corporation-tax-to-74m-as-sales-soar-to-7bn, 10 August 2017
    3 https://euobserver.com/economic/138730, 11 August 2017

    0.01€ per client. Being still private AirBnB doesn’t disclose its revenue (estimated by Forbes at $3 Billion for 2016.
     In September, the same French Minister told his colleagues that President Macron’s Web Tax proposal was very popular in France and gathered support from Germany, Italy and Spain4. As a consequence, the Estonian presidency proposed to discuss on 16 September, in an Informal Council of Finance Ministers, a precondition for making GAFAs pay taxes where they are due: the so-called principle of “virtual permanent establishment”, whereby digital firms pay taxes in countries where they have a “significant digital presence”5. In that meeting, six other Member States supported the ‘Big4’ for discussing a Web Tax in the next European Council6.
    Non-Governmental Organisations such as Oxfam and EuroDaD, which have been complaining on tax evasion in developing countries, are now pushing for ‘fair taxation” in the EU7.
    The so-called “Monti” report, on the Future Financing of the EU, was published in January by renowned politicians and finance experts, including Eurofederalist leader Guy Verhofstadt, Prof. Fuest (mentioned above) and led by Prof. Mario Monti – former Italian Premier and EU Commissioner for Competition.
    They review in detail a so-called EU Corporate Income Tax (CIT), based on the Commission report “Building a fair, competitive and stable corporate tax system”8. They propose in particular to re-launch the common consolidated corporate tax base. A pity this initiative exclusively concerns the coordination of such tax and not the possible use of its revenue for the EU budget.
    The Monti report states that such an EU level CIT would be fair as it is directly linked to EUs activities. This is unlike the shares of national income which currently pay for the EU activities, generating the concept of ‘juste retour’ where Member States measure how much of what they pay in the EU kettle, they get back from its contributions to their farmers, regions and researchers (which make for 90% of the EU activities).
    A CIT, says the report, would be: Fair in obliging companies to pay taxes over the zone where they make their profits; effective and simple to collect for larger companies – which have integrated accounting and might even appreciate not having to build complex tax systems anymore; transparent as it would avoid the now infamous tax rulings; It would eliminate all preferential tax systems and increase democratic accountability.
    It would have European added value in fiscal matters given its close link to deepening the single market and making it fairer; it would respect the subsidiarity principle allowing Member States to regain in fact fiscal sovereignty as they would avoid the current ‘race to the bottom’ of fiscal dumping.
    4 http://www.politico.eu/article/france-predicts-wave-of-support-for-google-facebook-tax-plan/, 14 September 2017
    5 https://www.euractiv.com/section/economy-jobs/news/estonia-pushes-fair-taxation-plan-for-web-giants-in-europe/, 16 September 2017
    6 Romania, Bulgaria, Slovenia, Greece, Portugal and Austria http://www.politico.eu/article/ten-eu-nations-back-new-plan-to-tax-digital-giants-google-amazon-facebook/, 16 September 2017
    7 Report http://eurodad.org/fiftyshadesoftaxdodging in 2015, #StopTaxDodging campaign in 2017.
    8 http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1487785362759&uri=CELEX:52016DC0682

    Given the very diverse fiscal landscape for corporate taxes and the positioning of a small number of countries at the head of tax competition in this area, political agreement will be difficult, although the numerous recent tax scandals have increased the pressure to act in many Member States. The capacity to convince that such common corporate tax base will bring economic dividends also for these small countries will be essential to find consensus.
    The Commission and the ‘Monti’ group envisage the possibility for companies to voluntarily register to the system, except for companies making more than 750 million euro of consolidated group revenue – worldwide. We would advocate a higher threshold of 1 billion euro. According to our estimation, based on the Forbes 2000 biggest public companies9, taxing the 1917 companies passing this threshold would yield some 90 billion euro if profits were taxed at 15%: lower than most national rates. And then there are also large private ones, which profits are harder to know.
    9 http://www.forbes.com/sites/steveschaefer/2016/05/25/the-worlds-largest-companies-2016/#254aedc137eb

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