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Published online by Cambridge University Press: 06 March 2019
Following a three-year investigation, on August 30, 2016, the European Commission (EC) released its decision in the Ireland-Apple State aid case. The EC found that Ireland had breached the Treaty on the Functioning of the European Union because the manner in which Ireland had determined the tax payable by two Apple subsidiaries was not consistent with the arm's length principle and/or it was not based on objective criteria. This meant that Ireland had selectively favored Apple and provided the firm with State aid. The EC decision provides an example of how aggressive multinational enterprise (MNE) tax minimization is anti-competitive. The Ireland-Apple case also provides an illustration of how a lack of transparency and incoherency in MNE definition contribute to aggressive MNE tax minimization. States' reactions to the EC decision are further telling because they show how MNE tax minimization engages the self-interest of States. This suggests that efforts to combat aggressive MNE tax minimization, such as the OECD's Base Erosion and Profit-Shifting Action Plan, face complex State motivations in effecting change on the international level. Profit haven States have the most to lose if MNE tax minimization is effectively addressed. In addition, MNE home States may be at times loath to support changes to the system which favors “their” MNEs at the expense of other States' tax revenues. It is as if some home States view MNEs as their privateers, with such MNEs operating internationally under the tacit approval of their home States to aggressively avoid paying taxes to other countries. Home State leadership may be mistaken in thinking that MNE tax minimization is in their favor because MNEs are largely free agents and aggressive MNE tax minimization is dearly costing nearly all states.
1 International Monetary Fund, Spillovers on International Corporate Taxation, IMF Staff Report 11 (May 9, 2014), https://www.imf.org/external/np/pp/eng/2014/050914.pdf; See also Henn, Markus, Tax Havens and the Taxation of Transnational Corporations, Friedrick Ebert Stiftung (June 2013), http://library.fes.de/pdf-files/iez/global/10082.pdf.Google Scholar
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3 OECD, BEPS Frequently Asked Questions, http://www.oecd.org/ctp/BEPS-FAQsEnglish.pdf (last visited May 8, 2017) (emphasis added).Google Scholar
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21 Ronen Palan, Tax Havens and the Commercialization of State Sovereignty, 56:1 Int'l Org. 151 (2002) (discussing the failure to acknowledge the unity of the MNE).Google Scholar
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23 See EC Decision, supra note 7, at para. 440.Google Scholar
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26 Id. para. 1 n. 2 (describing Ireland's use of the terminology of “advance opinion”).Google Scholar
27 Id. at para. 222.Google Scholar
28 Id. at para. 49.Google Scholar
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31 Id. at para. 158.Google Scholar
32 Id. at paras. 65, 158. Local employment provided by Apple was also discussed at this meeting.Google Scholar
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35 Id. at para. 61.Google Scholar
36 Id. There was also a capital allowance permitted to be claimed, but not exceeding “by USD [1–10] million the depreciation charged in the accounts.” Id.Google Scholar
37 Id. at para. 60.Google Scholar
38 Id. at para. 62.Google Scholar
39 Id. Google Scholar
40 Id. Google Scholar
41 Id. at para. 71.Google Scholar
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43 Id. at para. 75.Google Scholar
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46 Id. at para. 222.Google Scholar
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48 Id. at para. 220.Google Scholar
49 Id. at para. 226 (citing Joined Cases C-78/08 to C-80/08, Paint Graphos and Others, EU:C:2011:550).Google Scholar
50 Id. Google Scholar
51 Id. at para. 242.Google Scholar
52 Id. at para. 411.Google Scholar
53 Id. at para. 245.Google Scholar
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55 Id. at para. 246.Google Scholar
56 Id. at para. 247.Google Scholar
57 Id. at para. 257.Google Scholar
58 Id. paras. 249–53. The EC cited Joined Cases C-182/03 and C-217/03 Belgium and Forum 187 ASBL v. Commission, EU:C:2006:416 as authority that:Google Scholar
[A] reduction in the taxable base that results from a tax measure that enables a taxpayer to employ transfer prices in intra-group transactions that do not resemble prices which would be charged in conditions of free competition between independent undertakings negotiating under comparable circumstances at arm's length confers a selective advantage on that taxpayer for the purposes of Article 107(1) of the Treaty.Google Scholar
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59 Id. at para. 253 (emphasis added).Google Scholar
60 Id. at para. 260.Google Scholar
61 Id. at para. 264.Google Scholar
62 Id. at para. 261.Google Scholar
63 Id. at para. 262.Google Scholar
64 Id. at para. 117.Google Scholar
65 Id. at para. 118.Google Scholar
66 Id. at para. 120.Google Scholar
67 Id. Google Scholar
68 Id. at para. 121.Google Scholar
69 Id. Google Scholar
70 Id. at para. 271.Google Scholar
71 Id. at para. 273.Google Scholar
72 Id. at para. 280.Google Scholar
73 Id. at para. 281.Google Scholar
74 Id. at para. 282.Google Scholar
75 Id. at para. 283.Google Scholar
76 Id. at para. 127.Google Scholar
77 Id. at para. 288.Google Scholar
78 Id. at para. 289.Google Scholar
79 Id. at para. 290.Google Scholar
80 Id. at para. 303.Google Scholar
81 Id. at para. 296.Google Scholar
82 Id. at paras. 297–301. Regarding marketing, the EC also noted a 2008 marketing agreement between Apple Inc. and ASI which had the Irish address in Cork as the party contact information for ASI. Id. at para. 133.Google Scholar
83 Id. at para. 305.Google Scholar
84 Id. at para. 306.Google Scholar
85 Id. at para. 307.Google Scholar
86 Id. (emphasis added and footnotes excluded).Google Scholar
87 Id. at para. 320.Google Scholar
88 Id. at para. 319.Google Scholar
89 Id. at para. 321.Google Scholar
90 Id. at para. 326.Google Scholar
91 Id. at para. 333.Google Scholar
92 Id. at paras. 337–39.Google Scholar
93 Id. Google Scholar
94 Id. at para. 344.Google Scholar
95 Id. at paras. 346–48.Google Scholar
96 Id. at para. 355.Google Scholar
97 Id. at paras. 356–59.Google Scholar
98 Id. at para. 377.Google Scholar
99 Id. at para. 381.Google Scholar
100 Id.Google Scholar
101 Id. at para. 383.Google Scholar
102 Id. at paras. 385–403.Google Scholar
103 Id.Google Scholar
104 Id. at para. 414.Google Scholar
105 Id. at para. 408.Google Scholar
106 Id. Google Scholar
107 Id. at para. 434.Google Scholar
108 Id. at para. 447.Google Scholar
109 Apple, Department of Finance Negotiating Terms for €13bn Escrow Account, Raidió Teilifís Éireann (Feb. 2, 2017), https://www.rte.ie/news/business/2017/0202/849541-noonan-defends-apple-ruling-appeal-decision/.Google Scholar
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111 Id. Google Scholar
112 Id. Google Scholar
113 The size of MNEs is calculated by number of entities within it.Google Scholar
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116 Id.Google Scholar
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119 Debra Johnson & Colin Turner, International Business 37, 101 (Routledge 2003).Google Scholar
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121 Indirect ownership of MNEs plays a role in affecting the power structures and key players behind such firms' roles in the global economy. While direct ownership connections may not be at a majority level in any individual MNE parent company, individual shareholding companies can themselves be subject to control, forming groups of inter-related shareholding companies. In other words, an MNE is one power structure, subject to the power structures represented in its ownership. On the quandary of indirect ownership see S. Vitali, J. B. Glattfelder, The Network of Global Corporate Control 6:10 PloSONE (2011); Glatttfelder, James B., Ownership Networks and Corporate Control: Mapping Economic Power in a Globalized World, ETH Zurich, Diss. ETH No. 1974, 156 (2010), http://e-collection.library.ethz.ch/eserv/eth:2007/eth-2007-02.pdf.Google Scholar
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128 CEO Tim Cook's narrative before the US Senate Subcommittee also took this tone, emphasizing Apple as a US company. He emphasized that 95% of the creativity behind Apple products was based in California. See Shields, Todd, Apple CEO Cook Rebuts $9 Billion Tax-Avoidance Claim, Bloomberg (May 21, 2013), https://www.bloomberg.com/news/articles/2013-05-21/apple-ceo-cook-rebuts-9-billion-taxavoidance-claim; see also Campbell, Mikey, Apple Publishes Execs' Opening Statements from US Senate Testimony, Apple Insider (May 21, 2013), https://appleinsider.com/articles/13/05/21/apple-publishes-execs-opening-statements-to-us-senate-subcommittee (providing a link to a full copy of Tim Cook's opening statement before the permanent senate subcommittee on investigations); Mikey Campbell, Cook Statement, SCRIBD, https://www.scribd.com/document/142827825/Cook-Statement (last visited May 13, 2018) (providing an upload of Tim Cook's opening statement before the permanent senate subcommittee on investigations) [hereinafter Tim Cook Senate Statement].Google Scholar
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Id. (emphasis added).Google Scholar
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169 Indep. Comm'n for the Reform of Int'l Corp. Tax'n, Declaration 4 (2015), http://www.un.org/esa/ffd/wp-content/uploads/sites/2/2015/03/ICRICT_FINAL.pdf.Google Scholar
170 Id. at 10–11.Google Scholar
171 See UNCTAD WIR 2016, supra note 110, at xiii.Google Scholar
172 Paul Sweeney, If Apple Won't Pay Tax What Hope is There for Civilization?, The Irish Times (Feb. 2, 2017), http://www.irishtimes.com/opinion/if-apple-wont-pay-tax-what-hope-is-there-for-civilisation-1.2959603; see Compania Gen. De Tabacos De Filipinas v. Collector of Internal Revenue, 275 U.S. 87, 100 (1927) (Holmes, J., dissenting).Google Scholar
173 See EC Decision, supra note 7, at paras. 411–12.Google Scholar
174 Id. at para. 381.Google Scholar
175 Vanessa Barford & Gerry Holt, Google, Amazon, Starbucks: The Rise of “Tax Shaming”, BBC News Mag. (May 21, 2013), http://www.bbc.com/news/magazine-20560359; Simon Neville & Jill Treanor, Starbucks to Pay £20m in Tax Over Next Two Years After Customer Revolt, The Guardian (Dec. 6, 2012), https://www.theguardian.com/business/2012/dec/06/starbucks-to-pay-10m-corporation-tax (“Starbucks is volunteering to pay £10m in taxes in each of the next two years as it attempts to win back customers following revelations that it has paid no corporation tax in the UK in the past three years.”); Elle Hunt, Apple Paid No Tax in New Zealand for at Least a Decade, Reports Say, The Guardian (Mar. 22, 2017) https://www.theguardian.com/world/2017/mar/23/apple-paid-no-tax-in-new-zealand-for-at-least-a-decade-reports-say.Google Scholar
176 See Cobham & Jansky, supra note 138, at 24.Google Scholar
177 Google, for its part, employs the so-called “Double Irish” or “Dutch Sandwich” in its tax strategy. See Jeremy Kahn & Martijn Van Der Starre, Google Lowered 2015 Taxes by $3.6 Billion Using “Dutch Sandwich”, Bloomberg (Dec. 21, 2016), https://www.bloomberg.com/news/articles/2016-12-21/google-lowered-2015-taxes-by-3-6-billion-using-dutch-sandwich (“By moving most of its international profits to Bermuda, the company was able to reduce its effective tax rate outside the U.S. to 6.4 percent in 2015, according to Alphabet's filings with the U.S. Securities and Exchange Commission.”). Google arrived at a tax settlement of 130 million pounds with the UK government in 2016, and French police are investigating Google for tax fraud in relation to the MNE's Irish structuring. See Womack, Brian, Google Agrees to Pay $185 Million in U.K. Tax Settlement, Bloomberg (Jan. 22, 2016), https://www.bloomberg.com/news/articles/2016-01-22/google-agrees-to-pay-185-million-in-uk-tax-settlement; Gaspard Sebag & Stephanie Bodoni, French Tax Investigators Swoop on Google's Paris Offices, Bloomberg (May 24, 2016), https://www.bloomberg.com/news/articles/2016-05-24/french-tax-investigators-swoop-on-google-s-paris-offices. Furthermore, Google—Alphabet Inc.—briefly displaced Apple as the world's largest MNE by market capitalization in February 2016. See PwC Global top 100 Companies, supra note 15, at 7.Google Scholar
178 Naren Prasad, Policies for redistribution: The use of taxes and social transfers 27 (2008), http://www.oit.org/wcmsp5/groups/public/—dgreports/—inst/documents/publication/wcms_193159.pdf. Prasad concludes:Google Scholar
This paper examined the extent to which taxes and social transfers have managed to redistribute the gains and losses from economic growth over the past 15 years or so. A key finding is that, despite increasing income inequality, the redistributive impact of taxes and social transfers has generally not been able to reverse this raising trend. One reason for this failure is that taxation has become less progressive and therefore less likely to address growing income inequality found in many countries. Generally speaking, indirect taxes—which are typically regressive—have become a more important source of government revenue. By contrast, tax rates both on corporate income and on top personal incomes have, on average, declined over the past 15 years or so.
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