Apple and others have a mighty job of corporate communications with tax issues in EU
Apple has a mighty job of corporate communications in the coming weeks. It is to be accused of doing a “sweetheart” deal with the Irish government to, in effect, avoid taxes in the rest of Europe.
Will customers mind higher taxes?
Amazon, Google, Fiat and Starbucks may also be under the cosh of the EU for tax avoidance. This is how it can work: you set up your main EU subsidiary in a low tax country. The favourites are Ireland, Luxembourg and the Netherlands. Then you trade in the rest of the EU. But you charge your other EU subsidiaries from your main subsidiary for everything you can. This makes a small profit or a loss in the other EU countries in which you operate. The profits, therefore, flow to your subsidiary where the tax is low. You funnel that back to the USA and your tax bill is smaller. All legal. But is it ethical? And will customers mind?
In every other country in the EU outside these low-tax countries the taxes have to be higher to make up for the short fall. Even the UK chancellor George Osborne this week said he would do something about it.
It becomes illegal if the companies involved got a deal from the country where they are registered to lower their taxes to stay in the country. In other words a “sweetheart” deal which amounts to state aid. And that’s illegal in the EU under the single market rules.
There is no state aid, says Apple
Apple protests: “There’s never been anything that would be construed as state aid,” Apple’s chief financial officer, Luca Maestri, told the Financial Times.
That’s all very well legally but there’s the corporate reputation issue to think of. Apple, a brand beloved by many, is working a complex tax regime. It needs to answer to European customers why, in their country, these customers are paying higher taxes as a result. Apple needs to address the ethical issues, not just the legal ones. There is no answer from Apple or the others on the ethical issues yet. They all need to get off the back foot and either change their tax regimes or explain them.
There’s some explanations they could all use:
- By doing this we are lowering the prices of products and services to EU customers. Lower taxes mean we can charge less. So you, the customers, win.
- These smaller countries, Ireland, The Netherlands and Luxemburg, need these regimes to keep going. Just consider the state of Ireland before it introduced these low tax laws in the 1970s. As a result of the change US companies flooded in creating employment. It was haemorrhaging people and not the Celtic Tiger it became from 1995 as a result of adopting this regime.
- And the “Err” is the problem. What other messages can Apple generate to support its position? Of course, if there was a “sweetheart” deal between Apple and the Irish government the game changes and it will be an illegal act.
- And yet again: You can win a free e-elarning course from ContentETC when you get the best caption in our Caption Competition. Go on, have a go.