One of the most significant tax stories in 2016 has, unusually, emerged during the generally quieter month of August. I am, of course, referring to the EU’s attempt to make Apple pay a further €13 billion in taxation to the Irish Government despite that government having agreed both the method of its computation and its quantum of its taxation liability with Apple.
We have always supported a level playing on taxation between SMEs and MNCs and understand the disquiet about the tax liabilities arising in this case. Nevertheless, we consider that both businesses and individuals ought to have the confidence that, provided a full disclosure has been made to the taxation authority (as is clearly the case here), taxpayers ought to be able to assume that their agreed tax liabilities for that year will not be increased many years later.
Many businesses (and not just MNCs) with operations across Europe now face the prospect of their agreed taxation treatment in member states effectively being invalidated with hefty, unforeseen tax bills to follow. Taxation law ought to be transparent and certain; not a belated clash between domestic taxation law and European legislation, in this case the EU’s so-called state aid regulations. I think the letter sent by Apple to its European customers makes a number of valid points; it can be found at:-
Read Apple's customer letter
In the medium term, the right way to combat tax avoidance by multinational corporations is for each country to implement the OECD’s/G20’s ‘Base Erosion, Profits Shifting’ (‘BEPS’) proposals which should be achieved over the next two years. The BEPS outcomes will, of course, need to responsive to the opportunities for employment growth, increasing international trade, the needs of consumers and, of course, the global economy generally.
Nevertheless, BEPS is the right way forward to create a level playing on taxation between SMEs and MNCs, not retrospective taxation brought in through the backdoor such as the Apple tax ruling which, understandably, both the Irish government and the company intend to appeal.
More generally, we consider the continuing debate concerning the taxation of multinational companies demonstrates the increasingly unsuitable structure of corporation taxes upon profits for these companies. What is needed is a simpler, more certain taxation basis which does not attempt to ‘slice-and-dice’ the global profits to be assessed by each country but focuses upon the local sales and operational presence. Clearly, such a radical tax policy shift would require extensive consultation with business and a sufficient degree of global agreement before it could be introduced.
Stephen Herring, Head of Taxation at the IoD