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The European Commission has ruled that tax breaks offered by Belgium to multinational companies are illegal, and that the companies concerned must pay the full rate of tax due in the country, reports VentureBeat. This follows similar decisions in Luxembourg and the Netherlands.
While none of these rulings directly impact Apple, they do make it look extremely likely that the Commission will reach the same decision in Ireland, where Apple pays just 2.5% corporation tax instead of the normal 12.5%.
The Irish government offered Apple the special deal in order to encourage the company to choose the country as its European headquarters. The European Commission has been running a lengthy investigation into the legality of this arrangement, and has recently extended and expanded its scope.
If Ireland is indeed found to have broken the law, Apple will have to pay the difference in tax for up to ten years. The total amount was estimated last year at $2.5 billion. Apple warned shareholders at the time that it may face ‘material’ back taxes should the decision go against it.
The EC isn’t the only entity unhappy with Apple’s tax arrangements in Ireland either. The Italian government accused Apple of failing to declare more than $1.3 billion of corporation tax in the country as a result of funneling profits through to Ireland. Apple, which has 16 retail stores in the country, recently agreed to pay the full €318M ($347M) claimed by the Italian tax office.
Photo: AP Photo/Rick Rycroft
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Hey, no problem. All those multinational companies can just raise their prices to cover the increased tax burden. The consumer pays for it in the end no matter how you slice the pie. Want to know why high tech businesses are virtually nonexistent in Europe? At least U.S. states and cities can offer corporations tax breaks to bring in jobs and tax revenue with the idea that the tax break will be made up with increased salaries, jobs, and sales taxes.
It doesn’t quite work like that. Apple (and other corporations) set the price to maximize profits based on consumer demand. If they raise a price (for whatever reason), demand will go down and profits will be reduced.
“Want to know why high tech businesses are virtually nonexistent in Europe?”
Except here in this case where the whole point is that the European headquarters for Apple is in Ireland?
“At least U.S. states and cities can offer corporations tax breaks to bring in jobs and tax revenue with the idea that the tax break will be made up with increased salaries, jobs, and sales taxes.”
Right, and that’s exactly what Ireland did. The problem with that is any of the other countries of the EU where they’re getting screwed due to what otherwise would be tax revenue in their country. If every country in the EU did what Ireland did, there would be a bidding war, and eventually no corporation would pay taxes as countries raced to the bottom to attract business.
While we see this in the US with states and cities bidding on tax breaks, ultimately the companies have to pay federal taxes at the very least. In the EU, you’d have companies free to completely run without paying any taxes.
TL;DR: You’re comparing a US tax system which has the highest corporate tax rate in the world at 39% with a tax system in an economic union that has an average tax rate of 22.6%. Besides just the disparity of rates, the two systems are very different.