John Mulheron predicts that “Apple Tax” is just the beginning as EU squares up to multinationals

Their latest update is less about courage, more about leverage and making money and given they are about to square up to an EU that’s all fire and brimstone, they could maybe do with putting a few euros to one side.

Not that Apple is short of a few bob. It apparently holds about $215 billion in cash and liquid assets offshore through a network of schemes that allow it and hundreds of other companies to avoid paying their share in corporation tax.

The Irish Government is in a bit of a pickle. They are correct in saying they are not a tax haven, more a tax theme park. With rules that allow companies to behave as they please and until now, above the law. They are also damned if they accept £11 billion in ‘missing’ taxes, as it will reverse a core economic model that has seen its growth outstrip every other European country over the last few years. Irish GDP was up +6% last year, +5% in 2014.

Welcome in Brussels

By choosing to side with Apple, the Irish government can start to expect the kind of welcome in Brussels usually reserved for Theresa May’s ministerial envoys.

However, it is somewhat ironic that Jean Claude Junker’s knickers are in such a twist.

Last year’s Luxleaks revealed details of tax breaks given to dozens of major firms in Luxembourg when the current European Commission President was also the country’s prime minister. Alcohol can make people forgetful, so I am told.

Back in January 2015, The EU also closed a major tax break that Belgium offered to multinationals, reportedly including beer giant AB InBev and British American Tobacco, and ordered the companies to return €700 million in unpaid taxes.

This recent Brussels crackdown on tax avoidance, ruled that the benefit to some 35 multinational companies was illegal and breached the EU’s rules on state aid to companies. A precedent has therefore been set.

Letterbox companies

The Dutch are also under pressure, at the last count having some 23,000 so called ‘letterbox companies’ which provide a front for businesses to shift profits offshore. They can also expect a knock on their door soon.

The Irish Government has buckled before. Back in 2014 it was forced to close its ‘double Irish’ tax loophole. This time it’s different. By taking the money it risks alienating other multinationals. Since 2004 over 100 US tech firms have set up headquarters in Ireland, providing one in six jobs. It’s no wonder that in a poll by broadcaster RTE 62% of the public backed the government’s decision to fight the ruling.

Over the pond, the US Treasury, with corporation tax rates of 35% compared to Irelands 12.5% are likely planning the best way to welcome home their Silicon Valley stars. Current rules allowing American companies to pay no tax at home on profits generated offshore, encourage them to keep cash abroad, costing the Treasury $100bn a year.

Some campaigners are calling for a short term repatriation ‘tax holiday’ but given Trump and Clinton are busy winning (or losing) votes and Obama is now more concerned with getting his handicap down, don’t expect much in the short term from Congress. Not that this Apple Tax ruling will move at any speed, some estimates put it eight-10 years before it’s brought before judges.

So what is the answer?

Countries are allowed to structure tax systems how they please and multinationals believe that because they employ lots of people, pay VAT and contribute massively to the global economy, its ‘fair’ they should hide from further corporation tax.

Clearly a global ‘flat rate’ is never going to work. It is more about the principal of everyone paying a fair share.

Last year, UK SME’s & mid-caps paid a record £32.4 billion in corporation tax – up 8% on 2014. Even the little Welsh village of Crickhowell (remember it?) stood defiant becoming the first offshore village and shooing away the likes of Starbucks from the parish.

We must find a way of levelling the playing field as the multinational playground bullies have it all their own way.

All anyone wants to life is fairness. Fairness isn’t paying 0.005% in tax when profits keep rising. The EU Commissioners smell blood and Ireland may have to make a decision. Remain and fall into line with Brussels, or join the UK in leaving the utopian state?

If they don’t and we’re able to negotiate the right sort of deal, we could have Apple’s Tim Cook getting in touch about some office space.

Our last Chancellor was happy to let Google off with a £130 million or 3% slap on the wrists in 2014……time to roll out the red silicon carpet!

John Mulheron is managing director of CMF Capital www.cmfcapital.co.uk