According to official data, the Irish economy grew by an extraordinary 26.3% in 2015. The recent ruling by the EU regarding Apple, and its corporation tax due to Ireland, will have all kinds of odd repercussions. Meanwhile, Apple is threatening to repatriate is overseas cash pile.
Intellectual property. What is it, and how do you value it? It is one thing for a company to put a value on intellectual property, but quite another for a statistical authority to include it when calculating a country’s GDP.
So let’s suppose a particular country charges a very low rate of corporation tax – say 12.5%. And let’s say companies relocate to this country to take advantage of the low tax rate, and bring with them their intellectual property. What does that mean for GDP?
Well, in 2015, it meant that Ireland’s GDP rose by a staggering 26.3%, making China seem like an economic tortoise by comparison. Not all are impressed. Economics Nobel Laureate, Paul Krugman, calls it “leprechaun economics.”
But suppose it was decided that Ireland has been undercharging corporation tax on one of the more prestigious companies it plays host to. And let’s say the EU chooses it to force this company to pay around 13 billion euros in taxes.
Now it is being suggested that if all that money Apple made in profits, and which the EU wants Ireland to tax, was accounted for properly, then Ireland’s GDP would be much greater – indeed in may not even have suffered recession during the early years of this decade. This in turn will affect, its contribution to the EU budget – an additional 280 million euros, or so suggested Ireland’s finance minister back in July.
Of course, if Ireland also charged Apple 13 billion euros in tax, it could afford the bump up in the EU budget contribution.
Meanwhile, Apple – whose boss Tim Cook is seething over the EU’s decision regarding its tax position with Ireland – is threatening to repatriate Apple’s cash pile to the US.
Apple is sitting on around $215 billion worth of cash overseas – money it is has been reluctant to send home because then it would incur tax. That is why, when it paid out large dividends a year or so ago, it borrowed the money rather than use its cash pile – and let’s face it, Apple can borrow money at a very cheap interest rate.
Apple was hoping for a cut in US corporation tax – currently at 35% and one of the highest rates of corporation tax in the world – at which point it was planning to repatriate its cash mountain, but the EU ruling may change that.
There is also a question mark over how much tax Apple pays – the EU says 0.005% in 2014, Apple says $400 million. No one seems to understand where this figure comes from. Does it include income tax paid by Apple on behalf of employees or VAT? No, Apple says it was corporate income tax – a strange case of how $400 million can equal 0.005%. Almost as odd as the Theresa May definition of Brexit – Brexit means Brexit.
There is a wider point. Should corporation tax be paid in accordance with where revenues occur? Or does it boil down to intellectual property – in which case tax should be paid at the place where the intellectual property is registered?
Some argue that instead of corporation tax, companies should pay tax based on revenue – if this were to happen, Apple’s tax bill payable to Ireland’s neighbours would shoot up.
And finally, that bring us to Amazon and its tax affairs in Luxembourg. Reuters has suggested that Amazon may be forced to pay 400 million euros in tax.
Bear in mind, however, that although Amazon made a healthy profit recently, for years this company has booked losses.
If you tax a company on its revenue, you may overcome the problems of corporate tax being funnelled through low tax havens, but then again, you may end up taxing companies that are making a loss.