Tax bill for Apple, Starbucks and Fiat
The investigation of the European Commission regarding possible illegal tax advantages for one of the largest companies in the world ended with a bombshell: the Commission concluded that the tax favourable tax treatments granted by Ireland were illegal and that Apple had to repay up to € 13 billion to Ireland. However, what about the other multinationals, who quite obviously hardly pay any tax?
In the cases of Starbucks and Fiat Finance, the Commission decided the verdict already in October 2015. It concluded that the tax advantages, granted by Luxembourg and the Netherlands to these two corporations were incompatible with EU State Aid Law. However, compared to Apple, the demands for repayment made on Fiat and Starbucks are comparably moderate: both companies only had to pay up to € 30 mio. each to both EU countries.
Also McDonald‘s under investigation
The investigations by the European Commission into McDonald‘s have been ongoing since December 2015: Luxembourg has granted the McDonald‘s Europe Franchising subsidiary tax advantages. In spite of large profits (for example € 250 mio. in 2013) the company has paid no corporate tax since 2009. The profits originate from license fees, which operators of McDonald’s branches in Europe and Russia are paying. After the media reported about these tax advantages and trade unions provided the Commission with further information, the EU officials initiated investigations.
The investigations into McDonald’s are still ongoing; that is why there are no details available concerning the amount of a possible tax repayment. Having said that, the European Federation of Public Service Unions EPSU works on the assumption of about € 1 billion.
Are other EU countries also eligible for Apple tax money?
In a press release from 30 August 2016, the Commission stated that Apple used a complex system to bundle profits, which were generated in different European Countries, in its Irish subsidiaries. With the help of Irish tax rulings the company hardly had to pay any corporate tax – in 2014, for example, they only paid 0.005 % on the profit generated.
Apart from that, the Commission pointed out that Apple’s Irish Centre of administration has neither employees nor business premises; hence it is just a letterbox company. Using this artificial tax construction, Apple managed to save tax payments amounting to € 13 billion over the past ten years. The EU Commission has now ordered Ireland to demand this amount from Apple. The reasoning of the European Commission might be very interesting for all EU Member States: other EU Member States might now reach the conclusion that Apple has to pay corporate tax in their country because the company generated part of its profits there. Should this be the case, the amount, Apple has to pay to Ireland, might be reduced. On the other hand, it may also mean that Apple has to repay more than € 13 billion in tax, as many EU countries have higher corporate tax rates than Ireland.
All EU States should now take the opportunity to demand from Apple the corporate income tax lost! However, what has to be said is that in the case of Apple the European Commission has done its homework.
Commission investigation also into Amazon
The European Commission has serious concerns also with regard to Amazon and is currently carrying out a relevant investigation. The issue concerning Amazon is about “transfer pricing arrangements”, which were made with the Luxembourg tax authorities and which lead to lower tax payments. As soon as results are available, we will provide more details!
In light of recent events, we once again repeat our demands on the EU decision makers:
- Country by Country Reporting (CBCR)
Parent companies should be obliged to provide central key figures and information on their subsidiaries, namely for each country, in which they are economically active. Subsequently, the tax authorities concerned will be able to process information on profits, taxes, accounting methods, place of activity, number of employees, labour costs, turnover etc.
- Abolishing letterbox companies
The ability of letterbox companies to open bank accounts shall be linked to stricter criteria or even forbidden – for example, if the beneficial owners are not known or if no actual economic activity is carried out locally.
- Disclosing beneficial owners in an international register
Constructions such as so-called letterbox companies have to be transparent. This urgently requires a global finance register and the disclosure of the actual details of ownership. Currently, letterbox constructions are hiding the actual owners and normally serve to avoid tax.
- Sanctioning financial service providers and bank institutes
With regard to setting up offshore companies, financial services companies and banks have to examine certain criteria. If these are not adhered too, tough sanctions have to be applied in future. Not to report asset and capital transfers should also be sanctioned.