On the 30th of August European Competition Commissioner Margrethe Vestager dropped a bombshell at the tax doors of the world’s leading multinational corporations. After a lengthy investigation she ruled that Ireland must recover from the local Apple subsidiary up to 13 billion euros ($14.5 billion) in unpaid past taxes, adding on interest on delayed payments, which could take the total to as much as 19 billion euros ($21 billion).The ruling was based on a decision that tax benefits provided to Apple’s subsidiaries in Ireland through two tax rulings amounted to ‘state aid’ that was illegal under EU rules.
The penalty, though huge by past standards, is not the issue here. With as much as $230 billion of cash and liquid securities (which can be easily converted to cash) at hand, Apple would not have to stretch itself to meet this bill. The real issue is whether Apple’s tax accounting, which is considered legal by the Irish government, can be challenged by investigators acting on behalf of the European Commission. It is taken for granted by the world’s biggest companies that they can transfer profits earned anywhere to locations that are tax havens as part of their “tax planning” decisions. The method through which this is often done is to charge inflated book prices (“transfer prices”) for goods or services sold by the parent or a third country subsidiary (depending on which is located in a country that imposes lower taxes) to the subsidiary in the country from which profits are to be transferred out. This inflates costs and reduces profits on paper in the country from which incomes are being siphoned out. The practice could mean both, that the effective income tax incidence on these companies globally is less than that on smaller companies and even individuals, and that some countries from where the profits of these multinationals are earned would be deprived of tax revenues on those incomes. These problems have been accentuated in the neoliberal era, since countries pursuing neoliberal trajectories are keen on attracting foreign investors into their economies, and are competing with each other to offer them a range of concessions, including concessions that facilitate this kind of tax avoidance, which is legal and does not constitute tax evasion.