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E.U. Bites Apple.

Updated on September 1, 2016

Apple was informed by EU Commissioner Margrethe Vestager that it had to pay 13bn Euros in tax to the Irish government. Both parties were accused of a " sweetheart" deal, in which next to no tax was to be paid, in return for investment and jobs in Ireland. The EU said this was in contravention of competition law. Both the Irish government and Apple are appealing against this ruling.

This article will look at the consequences of mega corporations such as Apple avoiding tax in their major markets. The most obvious effect is that the corporation imposes costs on the country(s) in which it operates. It will use the roads, rail networks, ports and airports, without contributing to their construction and upkeep. The corporation will not have contributed to the educational costs of it's local employees. In short, what happens is a classic case of the "free rider," The corporation enjoys all the benefits i.e. profit, without paying tax.

A different point of view would argue that we live in a globalised world, it is the duty of corporations to their shareholders to maximise profit, and minimise the amount of tax to be paid. However when tax is being avoided to the extent that it is essentially a zero tax rate, then the market is being distorted. The company which cannot or will not go to extreme lengths to avoid tax is put at a competitive disadvantage. In effect by paying tax and contributing to the infrastructure and education system mentioned earlier, they are in effect subsidising their competition!

One problem with the action of the EU is it will not go down well in the United States. Apple has $121 bn tucked away ( you may think 13bn Euros is small change to them), but this sets a dangerous precedent from their point of view. Apple has incredible influence and lobbying power in Washington, and the line may be that US companies are being unfairly sanctioned by the EU.

The EU should have a simple answer to any reaction by the US government. That is would the United States tolerate mega corporations such as Google or Apple operating in their nation, making billions upon billions in profit, and not pay a penny in tax? We can only hope wise heads prevail; the last thing the world needs right now is a trade war between the EU and the US.



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