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Press Release: Has the European Commission’s Apple decision signalled the beginning of the end of tax wars?

August 30, 2016   Blog

Press release – for immediate releaseglobal logo - square version NOV 2005

Has the European Commission’s Apple decision signalled the beginning of the end of tax wars?

Today, the European Commission has ruled that two tax rulings issued by the Irish tax administration on the tax treatment of Apple’s corporate profits represent illegal state aid under EU law. As a consequence, Apple has to pay up to €13 billion of taxes plus interest to Ireland. This sum due to the Irish exchequer can be reduced if other countries from Europe, Africa, the Middle East or India or the United States decide to claim a share of those profits. This lays bare the core of a global problem: secretive tax rulings issued by tax haven states are not an instrument for the avoidance of double taxation, but a tool for the achievement of non-taxation of profits. In practice such rulings destroy fair market competition and undermine the tax sovereignty of democratic states.

This decision is remarkable on at least three counts.

The US Treasury just declared tax war on Europe

August 24, 2016   Blog

Update: here’s our research director Alex Cobham’s interview with Share Radio which goes through the key points.

On this quiet August day, the US Treasury has fired the first shots of a tax war with Europe. And while it’s wrapped up in a claim to defend international tax cooperation, it looks more like an attempt to prevent an effective measure against international tax-dodging – carried out, not least, by US companies. At the same time, the US continues as the leading hold-out against the automatic exchange of individuals’ financial information; and to resist the growing tide of public registers of the beneficial ownership of companies. The stage is set for a prolonged battle.

By publishing a white paper titled ‘THE EUROPEAN COMMISSION’S RECENT STATE AID INVESTIGATIONS OF TRANSFER PRICING RULINGS’ (h/t @RichardRubinDC), the US has signalled an end to a period of quiet tension. This long post considers why this matters; then sets out the main contents of the white paper; before concluding with an assessment of what is possible in the ensuing hostilities.

Implications

We explore the white paper’s main points below, but note first its significance. For one thing, it confirms just how bad relationships between the US and the Commission have become on the subject of corporate tax. The white paper is the opposite of gentle diplomacy – and quite close, in parts, to an outright threat.

Luxembourg, Amazon, and the State aid connection

xEarlier this month Bloomberg reported that the European Union had stated that:

“Luxembourg hastily approved a “cosmetic” tax deal with Amazon.com Inc. in 11 days, allowing the company to shift profits to a tax-free unit. The EU told Luxembourg officials in a letter that the deal, based on a “cosmetic arrangement,” gives the Internet retailer an unfair advantage over competitors and doesn’t comply with global standards.”

In following analysis, originally posted here, guest blogger Dimitrios Kyriazis of University of Oxford examines the substance of the advance tax agreement struck between Amazon and Luxembourg and the problem this agreement poses for market competition in the European Union.

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