Tax Tactics Threaten Public Funds
When the European Commission charged this week that Ireland’s sweetheart tax treatment of Apple amounted to an illegal corporate subsidy, the company said that it had done nothing wrong.
Corporate tax strategies intended to minimize global taxes, by hook or by crook, are by now standard practice. Google and Facebook move money through Ireland to lower their taxes. Starbucks uses the Netherlands, a practice that is under review by Europe as well.
The question is whether this sort of strategy — as common to multinational companies as filing a tax return every year — can truly be stopped. What hangs in the balance is whether governments can continue to tax corporations beyond the barest minimum.
Across the 34 O.E.C.D. nations, corporate tax revenue actually grew from just above 2 percent of G.D.P. in the 1960s to some 3.7 percent in 2007, before the financial crisis walloped companies around the world.
In 2012 the Irish subsidiaries of American multinationals generated $120 billion in profit, according to United States government data, eight times as much as their German subsidiaries. Subsidiaries in Bermuda generated $82 billion, four times as much as subsidiaries in Mexico.
Can these problems be fixed? “I think so,” Mr. Saint-Amans said. “The golden age of ‘We plan aggressively and pay taxes nowhere’ is over.”
Under enormous pressure from the rest of the world, tax havens might even repent. The Irish, he said, have been mulling tightening the rules unilaterally, concluding that the bad blood generated by the arrangements outweighs the modest number of jobs that they lure and the scant tax revenue that these artificial investments leave in the country.
Today companies need move little more than a post office box to gain the benefits of a tax haven. If the rules were tightened so that a company could claim a profit only where it really made it, it might decide to move a lot of operations and jobs there.