The Apple's been dropped and the taxmen cometh
Published 23/09/2016 | 02:30
The recent EU decision in the Apple case is bad for the EU, Ireland and every Irish taxpayer from the self-employed individual, to the PAYE worker, to the biggest multinational company.
Why? Because it undermines confidence in both the European Union and Irish tax and broader economic systems and the resulting uncertainty threatens investment, resources and jobs.
Certainty is recognised as a key feature of any successful tax system. In essence this means the rules regarding the amount and timing of tax liabilities should be clear. Commissioner Margrethe Vestager's decision completely flies in the face of this basic principle because it ignores tax law and generally accepted international best practice. Not only that, it goes back an unprecedented 13 years.
Let's get a few simple things clear. One; everyone agrees the international tax system is far from perfect and is in need of reform. Two; reform has been required for a very long time. Three; it is the job of regulators and not taxpayers to create and maintain the rules and to do so in a responsible manner thereby building confidence in the system. The regulators have failed and just like a bad football manager many regulators are now looking to blame the players rather than take an honest look in the mirror.
The following is a quote from a former US president: "Recently, more and more enterprises organised abroad by American firms have arranged their corporate structures… so as to exploit the multiplicity of foreign tax systems and international agreements in order to reduce sharply or eliminate completely their tax liabilities both at home and abroad."
This comment was made by President John F Kennedy to the US congress in April 1961. Yes, over 55 years ago. When the Apple decision was first announced many people suggested it was politically motivated and much of the subsequent commentary coming from EU officialdom simply reinforces these suspicions.
The EU dislikes the fact that the American tax system subsidises international expansion by US companies and the EU wants this changed. Their message can be boiled down to, 'a pot of money has not been taxed, we don't like that, we want it taxed and we don't care whether it goes to Ireland, the US or any other European country'.
Unsurprisingly, the US has come out to tell Europe to get its hands off their money while a whole host of EU countries have unsurprisingly jumped at Ms Vestager's open invitation.
Since early 2013 a major process of reform of the international tax system has commenced and is being led by the OECD.
The Irish Government has fully engaged in this and a number of reforms have been introduced to adapt our rules to the changing landscape. In many ways Ireland has been one of the leaders in this respect. We need to continue to reiterate our open and transparent tax regime which is competitive and fair.
Therefore, when our system is challenged like it has been and we are used as a political football, the Government has no option but to come out and defend our country. The same principle applies to all taxpayers.
It is the job of taxpayers to comply with laws and regulations in a responsible way that best balances the interests of all their stakeholders including employees, investors and customers. Failure to do so will mean that taxpayer is at a competitive disadvantage.
We live in uncertain and changing times and this will lead to more and more tax challenges. Some will be informed, some ill-informed and some may be politically motivated. All will consume resources and time. Businesses should have a clear tax strategy, communicate it to stakeholders and defend it where necessary.
Colin Smith is a tax partner at PwC