March 5, 2017
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.
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.
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 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.Eurobrat