How Apple's tricky accounting could spark global tax reform

The Week
CEO Tim Cook and his Apple empire aren't the only behemoths to take advantage of tax loopholes.
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CEO Tim Cook and his Apple empire aren't the only behemoths to take advantage of tax loopholes.

World leaders unite after learning how Apple avoided paying taxes on $74 billion in profits

Apple's technology changed the world. Its evasive tax practices just might do the same. After a Senate panel revealed that Apple had avoided paying taxes on $74 billion in profits overseas, European lawmakers are pushing hard to tighten corporate tax rules.

The issue is particularly important to European legislators because Ireland happens to be at the center of Apple's tax trickery. The Senate panel discovered that an Apple affiliate registered in the country had paid zero taxes despite raking in $30 billion in profits over four years.

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Apple isn't the only such offender. Google, with its "Do no evil" motto, was named along with Amazon and Starbucks as American companies who paid low or no taxes on billions of dollars in profits made in Europe. According to Reuters, E.U. governments miss out on $1 billion a year thanks to tax-avoidance schemes.

"We have got to make sure as we set those tax rates that companies pay taxes, and that means international collaboration, the sharing of tax information," British Prime Minister David Cameron said Wednesday at an E.U. summit meeting in Brussels.

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German Chancellor Angela Merkel claimed that Europe made more progress on the tax-avoidance problem in one day at the summit than it had previously, though the meeting only declared the direction of policy for the next few months. Still, Merkel believes that because of these first steps, "a breakthrough [is] possible."

Focus on the issue is expected to continue at the G8 meeting in Northern Ireland next month and later at the September G20 summit, where other economic powers like Russia, China, and Brazil will weigh in.

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For now, it's mostly the U.K., France, and Germany leading the charge. Their first goal is to install an information-sharing system to put an end to financial secrecy.

Switzerland, which sits outside of the E.U., appears to be the fly in the ointment. Strict Swiss privacy laws have attracted wealthy people from all over the world, so it would be difficult to rein in the country's tax-sheltering practices. Luxembourg, home of Amazon's European headquarters, and Austria have complained that any increase in transparency in their own tax codes should be matched by Switzerland. So the Swiss issue will likely have to be addressed somehow.

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Pressure is also on Ireland to close what U.S. lawmakers say are loopholes that let companies avoid paying taxes.

Irish Prime Minister Enda Kenny defended his country's tax code, telling reporters, "I'd like to repeat that Ireland's corporate tax rate is statute-based, is very clear and very transparent — and we do not do special deals with any individual companies in regard to that tax rate."

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Despite some resistance, it looks like the combined economic power of the E.U. and United States could force hesitant countries to reform. Even tax havens outside of Europe, such as Singapore and the Cayman Islands, have promised to make changes to their tax codes.

"In five years, there will be no tax havens left on earth," Egide Thein, former director of the Luxembourg Economic Development Bureau, told The New York Times, because "a country cannot prosper in the long run from stealing other people's taxes."

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