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Apple Ruling Puts Emphasis on Need to End ‘Deferral’—the Biggest Tax Dodge

Administration and Congress Should Focus on Collecting the Remaining $51.5 Billion that Apple Owes American Taxpayers

U.S. corporations woke up today to find that the European Commission ruled that Apple must re-pay Ireland roughly $14.5 billion it provided in illegal tax breaks.

According to The Wall Street Journal:

The European Union’s antitrust regulator has demanded that Ireland recoup roughly €13 billion ($14.5 billion) in taxes from Apple Inc., after ruling that a deal with Dublin allowed the company to avoid almost all corporate tax across the entire bloc for more than a decade—a move that could intensify a feud between the EU and the U.S. over the bloc’s tax probes into American companies.

With all of the finger pointing and spin, it’s important to take stock of the facts.

Let’s be clear—Apple’s pretense that it is a good corporate citizen that pays its taxes is now over.

  • The European Commission has disclosed how, with assistance from the Irish government, Apple attributed over 99% of the profits it earned in Europe, Africa, the Middle East and India to a phantom “head office” with no employees, premises, or economic activity, and ensured those profits were never taxed by anyone.
  • Moreover, less than 1% of Apple’s profits were made subject to Irish taxes.  According to the European Commission, the end result was that in 2011, for every 1 million euros in profits, Apple paid 500 euros in tax, a tax rate of 0.05%.  In 2014, Apple’s tax rate dropped even lower—for every 1 million euros in profits, Apple paid just 50 euros in tax, a tax rate of 0.005%.

Offshore tax dodging is a very serious and growing problem. It negatively effects each and every nation in the world.

However, American taxpayers lose more than any other country to tax dodging by multinational companies—up to $135 billion this year.

Today, the European Union (E.U.) signaled that it is engaged in a serious conversation and is willing to take steps to address aggressive tax avoidance and tax haven countries that facilitate the problem.

Unfortunately, the U.S. Administration and Congress have been less willing to do the same.  While saying they are defending U.S. tax dollars, current proposals from both the Administration and Congress to address the problem are more a giveaway to companies than a serious attempt to collect what companies owe.

The current proposal from the Administration would reward U.S. multinationals that offshore profits—now estimated at a combined total of $2.4 trillion—with a discounted tax rate of 14% (approx. $336 billion).  At that rate, Apple, with more than $50 billion in profits in 2015, would be in the same tax bracket as an individual who makes $30,000.  Congressional plans have been even worse—proposing an 8.75% rate (approx. $210 billion).

Those amounts are far less than if they paid the current corporate tax rate. At the current rate, they owe approximately $700 billion.

Apple alone has approximately $215 billion booked offshore.

The U.S. Treasury and individual members of Congress have spoken out against the European action.  Some have said that this decision robs the U.S. of tax revenue and they are fighting for our share.  If the dispute with the European Commission is in fact about U.S. tax dollars, where is the push from the Administration or Congress to claim the larger sums that Apple still owes taxpayers?  They should be less concerned with the $14.5 billion in taxes that Apple owes Ireland, and more focused on the remaining $51.5 billion that Apple owes U.S. taxpayers.

Even more important, the Administration and Congress should act to end the policy that allows companies to move profits offshore untaxed. They should eliminate the practice of ‘deferral.’  Tax deferral allows multinational companies to book their profits offshore and avoid paying tax on those profits indefinitely—until such time as they re-book those profits back in the U.S.

That’s the serious debate. The time has come to end deferral.

Clark Gascoigne is the Deputy Director of the FACT Coalition.