How dare the European Union interfere with Apple parking billions in Ireland and paying practically no tax on it? Why you’d think Ireland was part of the EU and that the EU had a right to say what their member nations do. US Treasury Secretary Jack Lew thinks that’s pretty darned presumptuous of the EU to claim jurisdiction over what US corporations do in their countries.
Let’s review the facts. Ireland supports itself by being a tax haven. Big corporations can sluice money in from wherever to Ireland, where it pays a little bitty tax. Apple’s Ireland office has no employees and does no business there. The money is transferred in from elsewhere. Sooner of later, Ireland will be forced to stop being a tax haven and then will have generate revenue like other countries. It will genuinely be rough for them.
Our government has screamed at Apple for years to repatriate the $181 billion or so it has stashed overseas, so it would be taxable here. But now that EU says Apple must pay Ireland $14.5 billion in back taxes, our government has a hissy fit. Is this because they fear lost revenue or because how dare another country tell our corporations what to do. Either way, the infant United Sates and Apple CEO Tim Cook are banging their rattle on the high chair.
Whenever Brussels makes noises about getting tough with large U.S.-based firms, top U.S. politicians, business executives and commentators tend to fall into a reflexive response pattern and turn into crybabies. They immediately criticize the European Commission as an overbearing bureaucracy, hostile to innovation (and the United States per se), creating uncertainty, pursuing backward-oriented industrial policy, undermining investment in the EU and acting in an unfair manner.
Offshore Profit Shifting and the U.S. Tax Code, IRS testimony (PDF)
As to specific repatriation strategies being challenged by the IRS, these often involve foreign affiliates entering into various transactions with their U.S. parent that result in the parent receiving cash, notes or other property from the affiliates. Taxpayers assert that these transactions do not result in a dividend or gain to the U.S. parent corporation under various corporate non-recognition provisions. Examples of these transactions include so-called “Killer B” transactions, “Deadly D” transactions, zero-basis structures, and outbound F reorganizations. While these types of transactions have been addressed by new regulations, for pre-effective date periods the IRS has challenged many of them under common law doctrines and will continue to do so.