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International News Title: US taxpayers could end up covering Apple's back taxes in Ireland European authorities have clamped down on a special deal between Apple (AAPL) and Irish tax authorities, saying the arrangement uniquely favors Apple and is unavailable to other companies. Nixing the deal—which lowered taxes on much of Apple’s foreign income to virtually nothing—will force Apple to pay taxes in Ireland at the higher rate other companies pay. The bill: about $14.5 billion for the past 10 years, plus interest. But Apple may get reimbursed for all of that by an unlikely benefactor: the US taxpayer. “It’s extremely possible the US taxpayer will have to pay this bill,” says Stuart Gibson, a former government tax official who’s now editor of Tax Notes International. “For every dollar in tax Apple has to repay in Ireland, they may get to reduce their US tax bill by $1.” The foreign tax credit That provision is known as the foreign tax credit, which unlike much of the tax code is fairly simple, in concept. Under the US code, American companies doing business in foreign countries pay tax in the US as well as where they earn the revenue being taxed. In order to prevent companies from being taxed twice, companies earn a 1-for-1 credit on their US tax bill for taxes paid overseas. In a simplified example, if Apple paid $14.5 billion in taxes to Ireland in a given year, and its tax liability to Uncle Sam was $50 billion, it would generally be able to reduce its US income tax by the amount of taxes it paid to Ireland. So it would only owe $35.5 billion in US taxes. That’s $14.5 billion in revenue the US Treasury won’t get, which means the government can cut spending by $14.5 billion to offset the loss, or borrow to make up the difference. In reality, the government never cuts spending based on the flow of revenue from a single source, or raises taxes on some other entity in real time. So the difference is essentially made up by borrowing, which is a future obligation borne by US taxpayers. Apple and Ireland have both said they plan to appeal the commission’s ruling. One big question is whether the European Commission, which is part of the European Union, can overrule a sovereign nation’s right to set its own tax policy. Even the US government opposes the commission’s intervention on tax issues, arguing that it complicates negotiations between countries about how to set reciprocal tax policies. And a White House spokesman recently pointed out that taxpayers could get stuck footing the bill if the European Commission’s ruling stands. The commission acted, however, because Apple and a few other multinationals, such as Starbucks (SBUX), Amazon (AMZN), McDonald’s (MCD) and Alphabet (GOOGL), have been extremely aggressive at “tax arbitrage,” which is basically the practice of assigning profits to lower-tax nations, even if the revenue being taxed wasn’t earned there. Ireland has played the same game, lowering its corporate tax rate from 32% in the late 1990s to a mere 12.5% today, one of the lowest rates of any developed nation. That has made Ireland an offshore hub for many multinationals, especially tech firms, which can benefit from the way Ireland treats intellectual property. The comparable US rate is 35%. The European Commission claims that Apple’s financial maneuverings allowed it to pay a tax rate of .005% on a large portion of foreign income, derived not just from Ireland but from much of the world, other than the United States. Apple CEO Tim Cook fired back in a blog post, saying “we never asked for, nor did we receive, any special deals.” The courts will now decide, and in the twisted logic of foreign tax schemes, American taxpayers have reason to hope Apple’s Irish loophole remains open. Post Comment Private Reply Ignore Thread |
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