Apple was recently hit with an order by the European Commission to pay back taxes of 13 billion Euro to the Irish government for anti-competitive behavior. Ireland gave Apple specific legislation that allowed it to escape from paying taxes on its European sales. The EU, probably unique in the world, prohibits race-to-the-bottom economics. The EU countries cannot play off each other to offer special subsidies or considerations to lure industry, excepting only through corporate tax rates, which I’ll get to later.
The Boeing company’s move of its headquarters from Seattle to Chicago some years ago is a race-to-the-bottom case in point. Though the company had been located in Seattle practically since the beginning of the air flight industry, for whatever reason, the CEO and board of directors decided the company had to move. Maybe they were put out by the reputation Seattle gained for the first anti-capitalist, anti-globalization protests in 1998. Maybe it was too new-agey for their corporate mindset; whatever. Did they consider that many of their employees had lived there for a long time, maybe their whole lives? That they had homes, friends, community there? Okay, the decision was made by a small clique of honchos, for good or ill. So then did they get out their maps and do their research to look for the best location for their business and employees? Did they weigh all the disadvantages and benefits before deciding on Chicago?
No, they started a bidding war to see which city would give them the best tax breaks and special advantages. Chicago is a fine city, though it doesn’t have the glamour of the coasts, but it, like most American cities today has huge problems, not least of which stem from budget woes. Chicago paid dearly in subsidies and as a result schools and other programs important to the citizens of Chicago were diverted to the deep pockets of a very wealthy corporation. Boeing was not hurting, wasn’t having financial problems, they just wanted to milk the city for whatever few dollars they could extort. Yes, Chicago got the prestige of being the headquarters city and quite a few new jobs, but not the tax revenue to help solve its myriad problems.
The same happens here in Cambodia. Manufacturers wanting to locate here get tax holidays of up to ten years. So one of the world’s poorest countries – GDP is now a bit over $1000 per year – provides special breaks for garment factories so they can sell their products a little cheaper to wealthy people in the West. Meanwhile, just like in the American example, the money to pay for the infrastructure necessary to accommodate the influx of workers has to come from elsewhere. There are reasons why companies would want to set up in Cambodia. The only reason why subsidies are needed is because everybody else is doing them, racing to the bottom.
Back to Apple. This gets complicated, but basically what these multinationals do is create a separate corporation that holds their intellectual property, so every time an Apple product is sold in Europe a fee is paid to that corporation, except it is an entity on paper only; it has no employees or physical presence. All the work collecting and holding the money, which amounted to 13 billion Euro in ten years, was done by Apple employees where the taxes should’ve been paid. Besides, most of the creativity behind the intellectual property was actually done in the US.
Apple CEO Tim Cook was livid about the prospect of paying those back taxes and the Irish government backed Apple up saying they didn’t want the money. So here’s a little perspective: Apple is the world’s most valuable corporation based on market valuation, more than $600 billion. The company has $230b stashed in tax havens outside the US, because under US law, they have to pay taxes on those profits when they’re brought back. On the Irish side, 13b Euro is the annual cost of the country’s health care system, about 10% of its GDP, and it is still suffering from austerity brought about by the crash of 2007 and the bailing out of too-big-to-fail banksters. So, to Apple that amount of money is pocket change, to Ireland, a lot of money.
Ireland believes it has to have a very low corporate tax rate – 12.5% – to encourage industry to locate there. Corporate tax rates is the one place where EU countries are allowed to compete, where race-to-the-bottom is allowed. As a result, many multinationals have set up offices there. However, there are several other EU states that also have that low tax rate and others not much above that. So why aren’t Apple and the others going to Slovakia, for instance? Well, Ireland has a highly skilled, English speaking population and companies would locate there regardless of the tax rate, though maybe not if it was really high.
Those low tax rates brought in an surge of investment and jobs but turned out to be a mixed blessing at best. The country was booming which attracted large numbers of immigrants which then fueled a housing boom where small flats in Dublin were selling at astronomical rates which then inevitably went bust in a resounding crash when the world economy tanked. Mainstream economists will tell you that the boom and bust cycle is inevitable, but that’s bullshit. When booms are happening lots of people are raking in the cash and the policy makers and the majority of investors think it’ll go on forever so they naturally push it hard when any right thinking person in power should want to slow it down, should want to keep the excessive growth in perspective because the aftermath for the great majority is worse then the benefits of the upswing, which usually go to the few.
If Ireland had pursued a moderate tax policy and relied on its natural advantages to grow steadily and prudently they would’ve been able to provide jobs for their people rather than growing so fast they were importing large numbers of immigrant workers. But they couldn’t do that because it goes against the grain of growth-at-all-costs modern economics. It was a costly mistake for the country, but they were merely following the dictates of the elite consensus which directs countries to bow and genuflect before their corporate masters.
So kudos to the EU. It’s certainly about time somebody started reining in these lawless corporations whose greed knows no bounds. If Apple acted like a good citizen and wanted the best for the country and people of the US or Ireland or wherever they have their facilities, that’d be one thing, but we know they have no conscience and feel no kinship or responsibility to the nations that provide the infrastructure and educational systems that helps them thrive. They only care about money and we know they’ll use whatever nasty or underhanded means at their disposal to amass more and they’ll never have enough no matter how rich they become.