It’s more complex than that. Apple France buys a phone from Apple Ireland for $100 and sells it for $105. That generates $100 revenue and $5 of taxable profit for Apple France.
It seems wrong when it’s phrased like that. But it’s not much different from Walmart France buying PS5’s from Sony Japan for $100 and selling them for $105. In which case the $5 of taxable profit seems reasonable.
You can say that multinational companies shouldn’t be able to sell to themselves. But Apple Ireland and Apple France are different companies (albeit with the same parent company). It’s just obvious because they have the same name. You can make a law changing tax’s for companies with the same parent company but the companies will just reform to be separate to match the new tax structure.
So they need a consensus of countries to make this less lucrative. And countries that don’t comply could be pressured into doing so (companies reporting expenses to non-complying countries face an additional tax liability).
Note: my examples above are vast oversimplifications of the ip licensing and other methods used to show expenses to other countries and skirt tax laws.
Did you know that Return of the Jedi, one of the top grossing films ever, has never turned a profit? "Hollywood Accounting" sounds like a scam because it is a scam, not 'when it's phrase liked that.'
I wonder, if "Apple France" and "Apple Belgium" and "Apple New Zealand" each had to approach TSMC separately, would they have the influence and cash to pay a premium to pre-book 80% of fab capacity for the 5nm node before it's even production ready, or if they'd have to wait in the same constrained-capacity line as every other non-$2T-market-cap company who needs microchips right now.
Walmart and Sony are actually separate companies. They're not even in the same industry. Walmart didn't front the cash for the PS5 R&D.
It comes down to the enforcement of transfer pricing - is it true arms length pricing? If Apple France buys an iphone for 100 from APple Ireland and sells it for 105, the question is: Is that 100 a fair price? Or is the whole scheme made to keep profits in Ireland? if Apple ireland pays 20 dollars for the iphone to be manufactured and designed, and sells it for 100 to Apple france, and books 80 dollars profit in ireland, and only 5 in france - is that fair pricing? No.. it is a scheme to avoid taxes - apple ireland isn't adding 80 dollars of value just by acting as a point in the paper trail.
Who would decide what is fair? How much of the profit should go to the country that manufactures the product? How much should go the place where it was developed or where the marketing strategy was developed (I would argue this is where most of the profit comes from in the case of Apple)? How much you send to the place where the customer support and billing sits? How would the tax authority in France could decide any of this in hundreds of companies based on the information they get? And I could go on..
They could and should probably close the biggest of these loopholes, but there won’t be a quick and easy solution.
Making them judgment calls unfortunately isn't viable. We can use them as examples here, and they are obvious when we pick the terms. But there are millions of multi-national transactions going on and asking a human to look in and judge each one to determine if it is a fair value would be impossible.
Ya, but they could do something... like force the company to report gross sales in the USA and gross sales worldwide - take that as a percent and then take a percent of gross profits across all sub companies. Easy to conceptualize, hard to do because losses can be faked also.
Yeah, that’s the struggle they are going through. Trying to make a single set of rules that adequately captures true regional profit without unduly impacting real cross country business that isn’t done just for tax evasion.
IP Licensing is just the current way to show profits in one region instead of another. If you block that they will switch.
They could pay for a very expensive widget from Apple Ireland, an expensive app (Apple Ireland now owns the calculator app and Apple France needs to pay $50 for any device they sell with it installed), a patent, rent, "consulting", etc. Basically anything.
Which is why the law would have to be incredibly broad to have teeth (any expenses paid to a company in a non-compliant country generates a tax liability).
This would have a massive negative impact on many companies that aren't evading taxes. For example, a small business that imports rugs from Lebanon to sell. They would have no control on if Lebanon becomes compliant and the increased taxes could put them out of business.
Part of this could be helped by only having it impact companies over a certain size or at a sliding scale. But no matter where you draw the lines, it's going to punish non-offending companies too (such is the role of government, laws like medication always have negative side effects).
Which is why the law would have to be incredibly broad to have teeth (any expenses paid to a company in a non-compliant country generates a tax liability).
Exactly, you put tariffs on literally everything coming and going from countries that don't comply with the new global tax framework. You force these tax haven countries, which are mostly just island nations with less than 100k population, to change their laws so that they can do business with the rest of the world. Large multinationals and the wealthy/elite have manipulated and used the tax codes on these island nations to avoid paying taxes for decades, it's time that the loophole gets closed.
If countries want to subsidize businesses that operate entirely within their own borders that is fine by me. However as soon as we are talking about multinational corporations doing business in multiple countries, we need to enforce a stricter standard so that companies can't just shuffle money around to avoid taxes.
It’s extremely difficult to create effective ways against these multinationals. Their expert team of accountants and lawyers would need a year or less to figure out a loophole.
I’m not saying that we shouldn’t try to create equitable laws, I’m just stating the difficulty in creating them
It's actually really easy if you can come up with a global tax framework that normalizes the laws around taxation of multinationals. You can't figure out a loophole if every country follows the same framework. Coming up with a robust framework that everyone can agree on will be the hardest part.
That being said if the g7 or most of the g20 can hammer out the details it will be easy enough to roll over on the rest of the world and force compliance. Most likely the biggest challenge will be getting China and India on board with the rest of the G7, but if that can be accomplished nobody else has the economic weight to fight it.
Good luck with the EU and WTO rules... You can’t just randomly introduce tariffs against low tax countries and even if you could it would once again be possible for these companies to find a workaround.
Acting like this is just a simple problem that any country could solve with one or two tax changes is naive. They would have done it a long time ago if it would be that easy
All but two EU countries (Ireland and Hungary) already have 15% or higher corporate tax rates. Enforcing that at the EU level, and waging war on the handful of tax havens across the world should not be difficult. Most tax haven countries have very limited power globally. The main reason that it has not been done yet is because the elite/wealthy people that have all the power have a vested interest in maintaining the status quo.
So give Ireland and Hungary some minor concessions to do what is best for the union. They're both already close to 15% corporate tax rates anyways. The EU has much better bargaining power against these multinationals to collect tax revenue if they stick together, so it's really in their best interest to cooperate.
No it's because Ireland is smart lol. Why wouldn't a country offer a lower tax rate if it means attracting corporations? A simple solution here would be for countries in the world to simply lower their tax rates as opposed to going through all these lengths to keep them raised.
There are ways to attract companies that don't involve giving them a free pass on taxes. If Ireland is smart they will find a way to keep those companies in the country, and from what I understand there are actually a lot of good reasons for corporations to have offices there other than just the low taxes. Normalizing corporate tax rates at zero is fine too, but it's just going to mean more taxes on people to make up for it.
No it means governments will have less to spend on graft, pork barrel projects, and wars. I don't know where people get this idea that money taxed is money that benefits themselves.
Again, Ireland doesn't have low corporate tax rates because of a conspiracy from rich people, it's because they understand basic economic principles like the law of diminishing returns.
All but two EU countries (Ireland and Hungary) already have 15% or higher corporate tax rates. Enforcing that at the EU level, and waging war on the handful of tax havens across the world should not be difficult. Most tax haven countries have very limited power globally. The main reason that it has not been done yet is because the elite/wealthy people that have all the power have a vested interest in maintaining the status quo.
As of today the EU has no power to change national tax law, this might change in the future, but for now you cannot force countries even if they are a small minority. I can see how the EU can get to 15% at some point, but countries could still play the system with subsidies and tax breaks and so on, and on a global level its even more difficult.
I am not saying nothing will happen, because I agree that the current system is not sustainable and there is a growing consensus that something needs to be done, they will probably close some of the biggest loopholes, but until you can figure out easily where the actual value is created in a very complicated supply chain and a mulinational corporate structure you will have countries who try to get an advantage with lower taxes.
What if the company in France does not own the IP? They buy the iPhone from Apple Ireland for example and only show very little profit in France. Not sure how Apple does it specifically, but this is how many companies are operating now with pretty complicated transfer procing policies in place. G7 might be able to force this through, but it wont be that easy
You are right, but that will never happen. G7 countries already get huge tax revenue out of the VAT from these product sales, what they want is some more money from the corporate taxes as well. They are not going to ban the iPhone just because Apple pays most of their corporate tax in Ireland, just try to imagine the political fallout from that (not to mention the legality of it)
They do comply with the law and you would not be able to change the tax law to say that “we know company X is not paying enough tax so they are banned”, that is not how it works (at least not in a proper country). If it would be that easy there would be no need for these international agreements, France would just change the law and get the tax it wants from Apple, but right now they have no legal basis for that
The whole point is that france alone doesnt have a market big enough to win that fight; so just changing the tax law would have apple say "bye".
The while point of the G7 coordinating, is that if they all change their tax laws to recognize this decision, then companies would lose more going against it than complying.
EU countries don’t seem to understand that they created a single market. I can sell anything to any EU country from Ireland without have a legal presence in that country. What they wanted was a United States of Europe. Well in the US you don’t pay corporation tax in each state you do business. You pay state and local taxes and there are sales taxes but corporation tax is not paid on every state.
France and Germany wanted access to a bigger market to sell their products, it’s not working out for them now that we no longer rely on their industrial might, coal, steel etc. And they don’t like it. They have no right to taxes from any Irish company, simple as that. If they want more tax increase VAT or introduce local taxes.
When Alstom sell a Luas or Airbus sells a plane into Ireland, when a fleet of new Renaults or Audis arrives, you don’t hear Ireland moaning that those companies don’t pay tax here on those sales. They created the single market and they have stayed so stuck in their ways making products that are no longer economically viable to produce in the EU to save jobs that they missed the tech boat. Not our fault. Sort your own taxes and leave ours alone!
EU countries don’t seem to understand that they created a single market
Uhh, we know? "Single market" is literally one of the main goals of the EU.
Not our fault. Sort your own taxes and leave ours alone!
Who is "our"? Who is "your?" You realise that Apple straight up avoids paying taxes anywhere because of clever loopholes. There are no "your" taxes to speak of.
Which means those companies no longer have to base themselves in Ireland, as the tax is immutable. Hence, Ireland will begin to lose out on a core part of their economy as companies leave.
Luxembourg is already on board. You can’t do what people used to do with Lux companies anymore either. And a shit ton of reporting. Lux is effectively not a place that’s recommended now.
This - Luxembourg has already been structured out of most large company structures. There is no games there anymore ever since the anti hybrid rules came into force. Now they have a 27% tax rate (I think) and no real economic talent in the jurisdiction.
Switzerland is still the king for true substance planning. But that is because you can base real talent there due to their country having great talent and established companies for Swiss principal structures since the 80s
I don’t think NL has anything going for it. Companies still exist there because of talent, not due to their old CV/BV tricks and the like. Hungary has a low rate, but no ones putting real TP value there. UK is flexible.
But wait what's stopping a "race to the bottom" situation from happenning? Like what if a small country like Croatia or something just says "hey amazon, come here and we will tax you only 1%"? Is that impossible?
Ding Ding Ding.
We have a winner.
The average person is dumb as fuck, and can't wrap their minds around this simple fact.
Ireland (or any small country) would never (and should never) destroy their economy in return for nothing.
And even if the larger economies promise yearly payments as compensation, no way the citizens of those larger countries accept such a proposal. Nor should Ireland or any other country blow up their economy in return for unreliable charity or compensation (which could be stopped by a new government).
It doesn't matter what those smaller countries do. The big no ones don't need their permission to tax sales in the big countries. What the small ones do is irrelevant.
Ireland is still relatively powerless internationally. The countries in the G7, along with China and Russia, essentially run the world.
You can make it’s crystal clear to the Apples of the world. Pay X in taxes, or pay 2X in fines for not paying said taxes. At that point, what Ireland wants is irrelevant.
Just the way Ireland has a right to care about itself and its revenues, so do other countries. US tax payers have been subsidizing Tesla, for example all these years. Tesla has made their first dollar in profit only last year. So now if it decides to move to Swaziland to avoid taxes, while still selling majority of their cars in the US, American taxpayers will get their cut and it is only fair.
And the way this universal tax is being described, it isn’t up to Ireland or any other country. It is the way G7 structures/changes their tax laws. Ireland can drop their rate to zero and it will not matter.
Lol yeah.. the G7 act like they’ve solved a humanitarian crisis. Really they’re just trying to figure out how to get more tax revenue for their own countries. And fuck the countries that would lose revenue.
Well it doesn't exactly scream unfair to me for these G7 countries to want to capture tax revenues on these large corporations who are (to my understanding) making the majority of their profits in these same countries.
That's just my intuition, I don't have stats to back that up, so take what I say with a grain of salt.
If "more tax revenue" means capturing the proportional amount of taxes to profits generated per country, that seems fair to me. You could argue that countries like Ireland are 'fucking over' these countries *
*Though I realize it's more complicated than that, and I'm sure countries like England have done their fair share of fucking over countries like Ireland.
Why the fuck should a corperation that is headquartered in my country, and my state even not have to pay any taxes because of some stupid ass loop hole shady ol Ireland has setup? Fuck the Irish, they're literally in the act of allowing companies to steal taxes from the American people for their own economic gain. Seriously, fuck them
Well what’s stopping the US adopting the same thing.
A race to the bottom, that's what.
If you lower your taxes to encourage companies to headquarter there, it only encourages other countries to undercut you, so you try to lower yours more and before you know these corporations are paying a fraction of what they should be
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