Biting Apple: Can the EU tax the global big boys?
As politicians on both sides of the pond rail against the byzantine tax avoidance schemes of global corporations such as Apple, Google, and Amazon, the big question is: What, if anything, can we do about it?
Tax avoidance, as opposed to evasion, is perfectly legal. And tax is not a moral issue, argue business organisations such as Britain's CBI, so there's not much use appealing to the better natures of companies whose first - and some would say, only - duty is to maximise returns for shareholders.
Apple's channelling of $74bn of revenue through offshore subsidiaries to avoid paying a cent in tax over four years, was within "the letter, and the spirit, of the law", its chief executive Tim Cook maintained recently before a US senate committee.
But Algirdas Semeta, European Commissioner for tax affairs, begs to differ, telling the BBC with palpable restraint that "it would be difficult...to agree that the spirit of the law is fully respected", when examining the "aggressive" tax avoidance schemes adopted by the likes of Apple and other multinationals.
"A corporation cannot be treated as socially responsible if it aggressively plans its tax obligations", he said.
He argues that adopting a corporate structure featuring subsidiaries that are not apparently registered anywhere in the world for tax is "not morally right".
Margaret Hodge, chair of the Public Accounts Committee (PAC), who recently branded Google "evil" for its slippery tax manoeuvres, agrees with this sentiment. But such moral outrage only fills news pages, not Treasury coffers.
"This [Apple] case and other cases recently...clearly demonstrate that we have big weaknesses in the international corporate tax system and these weaknesses have to be addressed", says Mr Semeta.
"In the past 10 or 15 years the world has completely changed and we have to adapt international taxation rules to the present realities," he said.
So what is the European Commission (EC) doing about it?
The raft of proposals being tabled by the EC include:
- renegotiation of double taxation treaties
- blacklisting of tax havens
- general anti-abuse legislation on a national level
- automatic sharing of information on all forms of taxable income
- reform of "permanent establishment" rules.
This last proposal is perhaps the most significant, in that it would stop companies - particularly digital enterprises that can easily operate across borders - from offering services in one country whilst being established in another country for tax purposes.
The "general objective" of the proposal is to embed the principle that if a company offers a service in a country, it should be liable to tax there, he said.
The "general anti abuse" laws would also give national governments power to "disregard" company transactions made purely to avoid tax, and would apply to bilateral agreements between countries to prevent companies shifting profits from one country to another.
EC president Jose Manual Barroso estimates that legal tax avoidance costs EU member states 150bn euros (£129bn; $194bn) a year in lost revenue. Adopting these measures would recoup "a significant" proportion" of this money, believes Mr Semeta.
As long as governments make "a firm commitment" to adopt the proposals, they could become law "in a matter of months", he says.
And there's the rub. Prime Minister David Cameron may be talking tough on tax in advance of the G8 summit in Northern Ireland in June - writing to British overseas territories, such the Isle of Man, Bermuda and the Cayman Islands, exhorting more transparency in their tax dealings, for example - but it remains to be seen just how firm international sentiment will be.
Mr Semeta hopes Mr Cameron "pushes strongly" at the G8 to drive through automatic tax information sharing proposals, but admits that without G8 commitment, it will be almost impossible to reach global agreement at the G20.
EU tax on corporate income currently averages 23% among member states, down from 31.9% in 2000, according to Eurostat, but still much higher than the 10% rate levied by Cyprus and Bulgaria, and the 12.5% levied by Ireland.
"We allow and facilitate fair tax competition", said Mr Semeta, confirming that there were no plans to standardise EU corporate tax rates.
But while such discrepancies in tax rates exist, surely companies will continue to arbitrage between countries and stay one step ahead of the legislators? Mr Semeta, for one, is determined that they will not.
One potentially powerful weapon at his disposal will be a "Tax Good Governance" platform that will monitor the progress of members states in implementing the EC's tax proposals, should they be adopted.
The panel, which will include representatives of EU member states and non-governmental organisations, will apply "peer group pressure", naming and shaming laggards on a "kind of scoreboard", he said.
Will new laws and peer-group pressure be enough to net more tax from the world's corporate whales?
Mr Semeta certainly hopes so.