The Apple tax bandwagon

Noted tax expert[1] Robert Reich lays into Apple's tax affairs in the Guardian:

The same disconnect is breaking out in the US. A Senate report criticises Apple for shifting billions of dollars in profits into Irish affiliates where its tax rate is less than 2%, yet a growing chorus of senators and representatives call for lower corporate taxes in order to make the US more competitive.
Nice strawman, Robbie m' boy. Apple isn't shifting profits out of the US. Apple is making profits outside the US (principally throughout Europe), registering income in its office in the low-tax environment of Eire - as explicitly provisioned in European laws - and is not moving such profits back into the USA because it doesn't want to pay 35% in tax for the privilege. It would rather keep profits abroad and look for opportunities to use them.

If the USA wants to see any tax from this money earned abroad, it will have to be repatriated into the USA in order to be taxable. Apple can't be forced to repatriate that money. In fact, Apple would rather raise $17bn of money via a debt offering than repatriate money from Eire.

Robert Reich also doesn't seem to pay much attention to his tax return:

Individual states in the US have embarked on their own races to the bottom, seeking to lure investments and jobs – often from neighbouring states – with lower taxes, higher subsidies, reduced regulation and lower real wages. Here again, the new generation of information technologies is intensifying the race.
I'd point out that Apple, Facebook, Cisco and Google are all headquartered in California - with one of the highest state tax rates in the USA. Jed Kolko from real estate firm Trulia additionally points out that the race to the bottom for taxes, such as it is, applies to people not firms. A lot of cutting edge IT firms still rise in Silicon Valley due to a combination of people for hire, VC firms and the pleasant environment. Tax competition isn't likely to change this very much.

Here comes the pitch:

Similarly, the EU could be a bargaining agent for its citizens if it were to condition access to its hugely valuable market on paying taxes in proportion to a global corporation's EU earnings, as well as making investments (including research and development, and jobs) in similar proportion.
So as well as paying sales taxes on everything you sell in the EU, you'd have to pay additional income taxes on the profits you make in the EU (which are then taxed again when and if they are repatriated to the USA to pay shareholders.) You'd have to invest in R+D in the EU, no matter whether you can find a good environment for that research. Someone in the government is going to have to decide whether what you're doing is actually R+D and whether you're contributing enough money to your EU research facilities. What could possibly go wrong?

Reich's take on the implications of this are ass-backwards to mine:

As a member of the EU, Britain would have more bargaining leverage than it would if it bargained separately. Hence, an important reason for Britain to remain in the EU: rather than a race to the bottom, the UK would thereby join in a race to the top.
On the other hand, if the EU takes this approach, and the UK makes a more congenial business environment, the UK will benefit from the additional taxes and R+D facilities because they're not burdening the businesses with additional regulation. I'm surprised that Robert Reich hasn't come across the Prisoner's Dilemma and its implications in his academic studies.

[1] Not really; professor of public policy at the University of Berkeley, California. He knows about as much about tax as I do about sewer planning. He was Labor Secretary under Clinton and lobbied for a minimum wage increase, which should calibrate one's expectations about his economic nous.

No comments:

Post a Comment

All comments are subject to retrospective moderation. I will only reject spam, gratuitous abuse, and wilful stupidity.