Apple, Amazon and Starbucks are now on high alert: Europe, unlike more plodding U.S. tax authorities, is swiftly moving to blast heavyweight corporations for playing shell games to skirt taxes on billions in profits.
In the past several weeks alone, the European Commission accused Apple of manipulating the company’s tax rate, and it called out Amazon for using royalty payments to avoid taxation in Luxembourg. The crackdown is putting pressure on low-tax European countries like Ireland — which has attracted big name companies with tax benefits — to tighten the rules.
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“The EU has sort of just woken up to the fact that within its midst are a bunch of countries whose existences depend on luring” companies away from each other with sweet tax deals, said David Rosenbloom, director of the international tax program at New York University.
The European investigations are just the start of a process that could allow the European Union to demand the U.S. companies repay tax revenue that qualifies as illegal state aid. But the cases are almost without precedent and it is unclear how long the probes will take or how likely it is that the EU will try to collect damages. The U.S. companies in the spotlight have long defended their tax practices in the United States and abroad.
The new, more aggressive stance is in sharp contrast to American tax authorities’ seeming glacial pace of policing corporate plays, which can drain billions out of U.S. coffers.
A beleaguered IRS and U.S. tax law are outmatched by a more streamlined EU system and greater public outrage over corporate tax maneuvering in Europe. The IRS has in fact been taking some of the same U.S. corporations to task for the same tax tricks for years, but the cases are moving slowly in a court most Americans have never heard of, and with limited success.
The overseas moves come amid an international effort coordinated by the Paris-based Organisation for Economic Co-Operation and Development — a group of rich nations tasked by G-20 nations with drawing up a plan to revamp corporate tax rules, expected next year.
While any changes will have to be implemented on a country-by-country basis, the project is pushing nations to take pre-emptive actions. Earlier this week, Ireland said it would ditch a controversial tax structure known as the “double Irish” — used by Google, Facebook and others — under growing international pressure.
Policymakers and the public outside the United States may be reacting more strongly to reports of convoluted corporate tax schemes because European countries came back from the recession at a slower rate than in the United States. Earlier this month, the IMF cut its forecast from Europe’s growth to a dismal 0.8 percent.
“If you look at the European economy, it is not doing well and people see large companies doing very well,” said Sang Kim, a DLA Piper tax lawyer in Silicon Valley. But, at the same time, he noted there is “a perception that companies are doing things they are not supposed to be doing.”
Frustration also has been mounting in the wealthier, higher-tax EU nations that have been forced to bail out their smaller neighbors.
“There are some tensions within the EU, where you have countries like Germany that are relatively high tax that don’t appreciate the countries like Ireland operating with a 12.5 percent corporate tax rate,” said Ryan Dudley, practice leader for international tax at accounting and advisory firm Friedman LLP.
European regulators were given ammunition to build on from a U.S. Senate investigation into tax havens. Sen. Carl Levin (D-Mich.) has used his oversight panel to lambaste Apple CEO Tim Cook, among other execs, and released a mountain of documents suggesting companies play fast and loose with tax laws, including in Europe.
This article was first published on politico.com on 16/10/14.