Tue | Sep 26, 2017

Why the EU tax probe is raising US ire

Published:Wednesday | August 31, 2016 | 8:00 AM
European Union Competition Commissioner Margrethe Vestager speaks during a media conference at EU headquarters in Brussels yesterday. The European Union says Ireland has given illegal tax benefits to Apple Inc and must now recover the unpaid back taxes from the US technology company, plus interest.

The European Union's crackdown on corporate tax avoidance has landed on Apple. Its antitrust regulator is demanding that the US tech giant pay Ireland up to €13 billion plus interest in back taxes.

The ruling is the highest-profile move yet in the European battle to make international companies pay what authorities consider their fair share of EU taxes.

The United States government has countered that European officials are unfairly targeting American companies.

Here are some questions and answers about the issue.

 

Why does the US care?

 

The US Treasury Department released a report last week claiming that American companies were being unfairly targeted in the probe and that doing so could end up costing American taxpayers. That's because businesses get US tax credits for their foreign tax payments. Apple and other US firms leave much of their foreign earnings overseas to avoid higher US tax rates. Treasury officials say they're working to get companies to repatriate those funds.

 

Are US multinationals really hit hardest?

 

The highest-profile multinationals to be investigated by the EU - Apple, Amazon and Starbucks - are American. But the EU Commission says there is no bias against US companies. It notes that Italian automaker Fiat was targeted last year, and that 35 mostly European firms were impacted this year by its ruling against a Belgian tax scheme. The Commission says all companies that generate and record profits in an EU country should pay taxes in line with national tax laws, no matter whether they are based in Europe or abroad.

 

Can Apple afford the

 

 

tax judgment?

 

Easily, given that the company's cash hoard exceeds US$200 billion. At the end of June, Apple reported holding US$231.5 billion in cash, cash equivalents and marketable securities. The company held US$214.9 billion of that amount in foreign subsidiaries.

Overall, Apple paid an effective tax rate of 25.5 per cent on pretax income of US$10.5 billion in its April-June quarter, for a total tax payment of US$2.7 billion. That left Apple with net income of US$7.8 billion in the quarter.