The Tax Case Of The Century !

One of the reasons the world has not recovered from the 2008 recession is because rich companies have squirrelled away their profits in overseas tax havens instead of investing in new ventures, creating wealth and jobs in their home countries.  It is estimated that American firms alone have 2.4 trillion laying idle, unable to be repatriated because of the tax that would be due once it crossed its home border.

Tax for the immensely rich is a matter of negotiation.   When they generate profits similar to the GST of many world countries they get an eager audience from the government of tax havens ready to accommodate their tax plans.   Such is the situation with Apple, the worlds biggest and most profitable company.

Back in 1991 and again in 2007 Apple came to an arrangement with Ireland to circumvent its low 12.5 % tax regime with what was called a " Double Irish " arrangement, that allowed Apple to combine the world profits from its business as taxable in Ireland - and it paid tax at somewhere between 0.005% and 1% of it's European profits.

Now the cat is well and truly amongst the pigeons.  The EU has declared this " Double Irish " illegal under its tax laws and levied a $ 14.5 billion evaded tax bill on the company.  Apple is appealing the ruling, but where charges for intellectual property must be divided up between where a product is designed, parts manufactured and then assembled and then where the end product  is finally sold it creates an almost inpenetrable maize from an accountable point of view.

The American government is showing signs of panic.   The EU has moved quickly to bring this tax matter to court and the American legal system is nowhere ready to do similar battle.   The Americans are demanding that the EU either backoff - or slow the action.   Should the EU win its case there seems a real chance that they would scoop the tax pool and when the American court action reached a conclusion - the cupboard might be bare !

This Apple case is merely the tip of the iceberg.   Action is pending on a similar tax rort by Starbucks in the Netherlands and Fiat in Luxembourg, and lesser tax cases will probably clog the courts for years to come.  The Americans are threatening tax action against EU companies with branches in the United States.

Hopefully, the final outcome may be some sort of universal tax agreement to nullify individual tax arrangements between countries.   Tax evasion by individuals has been a slowly closing net in recent times and the banking industry has been forced to end that time honoured anonymous haven of the " numbered Swiss bank account ".   Banks that refuse to open their books for the tax authorities are simply refused entry to the world banking system.

It seems that Apple will be the poster boy when this tax matter is finally settled.  It has all the classical components of intellectual property and a diverse network of assembling its end products by partial production and later assembly in a number of different countries.  Nailing down precisely where the element of profit actually occurred would be an accountants nightmare.  An even bigger nightmare will be getting universal acceptance of a common tax system by the diverse governments of world countries.

Achieving consensus might be the means of bringing our troubled world out of the economic doldrums.   The fact that $ 2.4 trillion is sitting in tax havens simply because that seems the only way to dodge punitive taxes is illogical.    If that money was put to work in a productive manner this world slump could turn into a jobs bonanza.

Unfortunately, unscrambling this tax omelet through the courts may take decades rather than months.   When it comes to tax agreements, the final outcome is a step into the unknown !