Shell paid less than 1 bln US in tax last year in the EU, and less than 5 bln US globally, and overall it's by far much more subsidized than Apple or Amazon, the difference being it's a European corporation.
Most of not all of the largest European corporations excel at Tax avoidance, in fact they are the ones Google, Apple and Amazon learned the tricks of the trade from, heck the EU was just fine establishing tax heavens for their own corporations and canonizing them in EU law as long as they are the ones benefiting from them.
Also has some other pointers about why Luxembourg is considered a tax haven...
It’s being reduced to 27 from 29, your figures don’t count in CIT.
The specific ruling that was posted seems to be that Amazon and Apple acted illegally and hence are liable for back taxes. The wider point is what OP was making, by my reading, and which the comment I replied to was refuting.
This is very important in deciding to pay taxes at all, and highly salient for people trying to impact tax legislation.
In terms of tax _burden_, though, it's quite odd to do anything but minimize taxation, and the extent of minimization cannot be extrapolated to social health or social costs.
The primary mechanism the government has to shape the economy is through taxation. It's not just transferring cash to the collective public coffers, there are specific reasons the government wants or doesn't want certain kinds of spending and certain kinds of economic relationships. You get a mortgage deduction because house ownership has perceived social benefits, for example. You get write offs for specific programs, or kinds of spending the gov wants to encourage. By ignoring the relevant tax-regime you are also ignoring the economic directives of your elected government.
At the same time: overpaying on your taxes is a highly inefficient way to do just about anything. Send post-tax cash to the DOD, NHS, charities, political parties, or to Lockheed-Martin directly, if you're so inclined. This will always yield more direct impact then indirect funding through government taxes.
Legal tax minimization is good for the economy and lets capital move 'intelligently' towards desired outcomes. It lets legislators shape the cradle-to-grave picture while maintaining representational control. Illegal tax minimization is criminal :)
This quote sounds almost ironically similar to this quip from Anatole France: The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.
The mega-rich, including corporations, work with the government (bribery, oops, I mean campaign donations) to ensure there are loopholes in place to avoid taxes.
While the average citizen can attempt to minimize his obligation, he has very little opportunity to do so. In the US, most people (about 60%) do better taking the standard deduction vs itemizing their deductions.
Yes there is. It may not be legally wrong, but it sure is morally wrong. What matters is the spirit of the law. The fact that big corporations can hire squads of lawyers and search and identify loopholes that allow them to pay outrageously low taxes on outrageously high revenues doesn't make it morally acceptable, even if they technically are following the letter of the law.
Add to that the fact that these loopholes and exploits are kept in place by fierce (and expensive) lobbying efforts from those very same companies and people.
Ah now. Governments don't just use taxes to raise revenue, but also for incentives. If they tax moving cash abroad to help with the balance of payments and you restructure your company to avoid doing this then everyone is happy. It doesn't excuse manipulating the government to make favourable tax laws however.
Disagree.
Legality does not equate to morality.
I generally disagree with the creation of special tax deals between governments and individual businesses, but it is the government that I disagree with, not the businesses for optimizing their tax burden.
Every large corporation regardless where they are from are try to get out of paying taxes in EU and it is great they are hunted. Many of them have been under EU tax crackdown and many more are to come.
As for the second parts it’s every large non-EU corporation and that is the problem.
These acts as well as the anti trust investigation into Google and other such affairs is a protective response to the lack of competitiveness from EU corporations primarily in Tech.
Tax avoidance in the EU isn’t an oversight it’s a deliberately orchestrated and legislated ordeal which was established to favor EU corporations.
Since the EU seemed to nearly skip the tech giant bubble and it’s largest corporations are primarily ancient energy and finance giants it now goes after US corporations which have subsidiaries in the EU.
This is selective enforcement the EU didn’t go after Lidl which keeps much of its Tax books private it didn’t go after BNP, Shell, ING and the like all of which also excel at not paying.
What you omit is that it is favorable because there is no income tax [1]: "Delaware charges no income tax on corporations not operating within the state, so taking advantage of Delaware's other benefits does not result in taxation."
European companies cannot incorporate in Delaware. If they would, they'd fall under US law.
Now, if the United States of America wishes to keep legal frameworks like these intact that is mostly the loss of all of the US citizens, although also a problem for competition due to lower prices.
You are deceiving when you claim Shell is paying no tax. I have a Dutch source with data saying they paid 10 billion in 2010 in The Netherlands [2].
I don't know if this fair or not, but I want to state that the EU needs to go after every company which is avoiding paying tax. That said, they should go after the biggest and easiest fish first.
> Tax avoidance in the EU isn’t an oversight it’s a deliberately orchestrated and legislated ordeal which was established to favor EU corporations.
Pot, meet kettle. AFAIK, no EU corporations follow the Irish-Dutch construction.
Starbucks, for example, had to pay back money as well. If you want to do business in the EU, you're going to pay income tax. Simple.
> This is selective enforcement the EU didn’t go after Lidl which keeps much of its Tax books private
Lidl is not keeping its tax books in UK private anymore since 2014 [3].
For completion, here's a list of companies following the double Irish with a Dutch sandwich construction [4].
[1] https://en.wikipedia.org/wiki/Delaware_General_Corporation_L...
[2] https://www.nu.nl/beurs/2795797/shell-draagt-10-miljard-af-o...
[3] http://www.bbc.com/news/business-28416081
[4] https://en.wikipedia.org/wiki/Double_Irish_arrangement#Compa...
This seems to be contradicted by the story itself:
"Luxembourg gave illegal tax benefits to Amazon. As a result, almost three-quarters of Amazon's profits were not taxed," Ms Vestager added.
She said Amazon paid four times less tax than other local companies.
And it says
> The tax ruling enabled Amazon to shift the vast majority of its profits from an Amazon group company that is subject to tax in Luxembourg (Amazon EU) to a company which is not subject to tax (Amazon Europe Holding Technologies) [...] the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality.
IANAL, but I am not sure why you interpret this as different from Apple's. They both depend on the arbitrariness and non-generality of a company-specific tax ruling.
http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX...
> They both depend on the arbitrariness and non-generality of a company-specific tax ruling.
Thats an opinion not a fact. The case has yet to begin in court.
IMO Apple did not get any special treatment. Basically all you need is a country like Ireland where an onshore incorporated become non-resident if controlled offshore [1]. And Ireland must be not be considered as tax haven [2] by USA [3] otherwise Apple Sales International would be taxed as per USA laws whether Apple USA repatriates or not.
[1] This was true until 2015.
[2] IIRC Ireland must be considered tax-fair country. Obviously a more strict condition.
[3] Now here Ireland enjoy the benefit of single USA-EU tax treaty.
sure, but it's the opinion of the EU. The same applies in Apple's case, it also is the opinion of the EU, and might be reverted in court.
My comment was only about the fact that they are the same thing, there is no major difference between the Apple and Amazon case.
> there is more than a good chance that this will not hold in the high court.
That is very unlikely. The Commission tends not to act directly unless they are absolutely certain that the case is extremely clear and they have ticked all boxes. This is because these actions have, obviously, huge political repercussions; Commissioners, at the end of the day, are politicians who have been entrusted to be somewhat above the fray and to look out for the whole continent, so they usually don't want to be accused of partisanship (there are always exceptions, of course; but the culprits tend to pay a heavy price in the end). The act itself is basically a statement that they have a great deal of proof. You won't find many people who know European legislation better than EU staffers themselves, so when they act on it, it's very unlikely they will lose a legal confrontation.
I dont know how EC can justify (in court) violating non-retroactivity traditions/laws.
That's why the Commission rarely acts in such a direct manner - they know they are talking to very powerful interests. But again, in most cases, when such procedures are invoked, national governments are eventually found in violation. Nobody enjoys victimizing a member state, they only do it when infractions are so egregious that they cannot be ignored.
> violating non-retroactivity traditions/laws.
If you don't pay taxes in 2012 and the state sues you in 2014, as long as the statute of limitations allows it, there is no retroactivity. The Commission only started to actively investigate these arrangements recently, but the relevant laws have been on the books (or rather in the treaties) for a very long time. Just because a policeman doesn't arrest you for beating your neighbour doesn't mean you're not breaking the law.
The case continues to hang over Jean-Claude Juncker, the European commission president, who served as Luxembourg’s prime minister from 1995 to 2013, and acted as finance minister for much of that period..... '"
The point is they get backroom deals.
https://www.theguardian.com/business/2014/nov/05/-sp-luxembo...
Sorry to open that can of worms, but taxing on profit in the country (and not headquarter placement) is actually one of the few early Trump suggestions that differed from the mainstream and made sense.
Let's say someone buys $1B worth of junk, has expenses like salary etc of $1B, does something with it and sells products and services worth $2.2B. Do they pay taxes on $2.2B or on $0.2B? I think we can fix some kinds of tax dodging by taxing the $2.2B. If I'm on a low margin business, that's not the government's problem to pick winners and losers, right?
I personally don’t see the point of corporate tax, other than to make other taxes seem smaller than they’d otherwise have to be. Profits are not in and of themselves useful to people; they have to be converted to income somehow.
- I'm sure Amazon did its best to pay the lowest possible tax. In EU they are taxed on profit so if they woundn't make a profit(i.e. they would reinvest) they would not be taxed.
- Amazon Europe is not Amazon US. They don't want to trade as Amazon US in Europe because they would pay even more tax(in the US).
- It's not enough that they are registered in a country with the lowest possible tax, they get a special deal there too to pay less tax than the other Luxembourg based companies/business. This is what EU is sueing them for...they've got state aid(as tax break) from Luxembourg.
That does not quite add up .... let's say the tax rate is 20%. The tax on $0.2B is $40m, the tax on $2.2B would be $440m, which would mean the company is making a $220m loss. But not only that, say the salaries are $1B then the government would $200m in double taxation, maybe socialise the loss and take $200 million from the workers salaries.
Then not only that, lets say the $1B of junk is made in the same country as the above company, the government would make another $200m by taxing them. That is a little regressive.
So you would penalize companies that are offering a useful service and making less profits over those that are offering a useful service and making more profits. The former may be reducing cost greatly to the consumer but may not be able to stay in business due to this type of tax. Thus, it would artificially prop up the cost of goods to the consumer.
That doesn't really make sense for America First...Why would US want its corporations taxed with 20% all over EU instead of 1% in Luxembourg? It would be less left to bring back home (whenever the corporate tax is lowered to make that possible).
The profit made in US is taxed in the US. Isn't that so? Maybe I didn't understand it but the article is more about the import/customs tax. As far as I understand from that link Trump wants to make the import costs non-deductible and basically pay an extra tax(due the lack of deductibility) on top of the custom tax. It's a pure protectionist policy.
The issue in EU is different. The companies operate in a certain state(i.e. Italy) but pay the tax in a different one(i.e. Luxembourg). Like BMW would do all its tax/accounting in EU with no regard to US's IRS even if it operates a business in US(i.e employs people, sells products etc).
See the excerpt:
>> Lawyers said the impact of the border adjustment and deductions for U.S. costs meant that imports would face an effective tariff of up to 20 percent.
“The total tax rate on the 100 percent domestically-produced good is going to have a lower effective tax rate than the rate on the import,” said Scott Lincicome, counsel with White & Case in Washington.
That would breach Article 3 of the General Agreement on Tariffs and Trade, which is policed by the WTO. This allows signatory states to impose permitted tariffs on goods entering their country, but precludes them from treating a domestic item more favorably than an imported one when it comes to internal taxes like sales or income taxes.
Hypothetical analogy: say BMW GmbH owned an American subsidiary (BMW Inc) that did all the US manufacturing under license via another subsidiary in Panama. BMW GmbH controls the cost of the IP (design, patents, control software) being licensed to BMW Inc - this cost can be tweaked so that BMW Inc never turns a profit, and so will not pay any American taxes. All the profits will be accumulating in Panama while waiting for Germany to rework its repatriation laws.
- Import tax on all the products(IP, patenets, licenses etc) licensed/purchased from BMW Panama
- Sales tax?
So the US would get more customs and sales tax and less profit tax. Nevertheless the scheme you mentioned is meant to lower the tax paid(i.e. the import tax may be lower than the profit tax) so I fully agree that something should be done. I guess only solution would be the term "tax avoidance" to be defined, put into the trade agreements(i.e. WTO, EU etc) and governments allowed fine the companies employing such practices just like the "state aid".
The issue in EU is way worse because there is no import or sales tax so using your hypothetical story BMW GmbH pays only the profit tax in Panama.
Related: In Europe the operating company takes loans at high interest rates from its shell in Luxembourgh to siphon off the profits.
As a result, this is completely justified – Amazon and Apple broke the spirit of the law with a technicality.
It's bollocks.
I think it is a pretty reasonable law. EU has a large inner market and the idea behind this law is that corporations should not be able to play countries against each other (i.e. you get a lot of jobs if we don't have to pay corporate tax) and just using tiny countries to get access to the large ones.
So see it as a collective bargaining that is beneficial for EU.
This isn't collective bargaining it's selective application of the law to give EU companies an advantage.
[1] https://www.treasury.gov/resource-center/tax-policy/treaties...
You know the easy way that large companies balance their cashflow between countries selling IP and stuff. Try that as a small company (eg: make money in the UK, try to hire some guy in Spain to build an app there, i.e. a genuine case of actual workflow issues) and realise that you can only charge for actual service and yes you can in theory have vague service like "consulting" but in reality if the tax office take an interest in your company you are going to be crucified. Cashflow balancing is corporate taxed both ways, better get it right.
This particular problem aside, for there are reasonable nuances from the EUs POV.
Your statment:
> we just can't accept that it's enough to open your headquarters in Luxembourg to only pay Luxembourg corporate taxes
Yes. We can. That is quite literally the point of being in the EEC and isn't at all the nuance of the issue Amazon and Ireland have encountered and not something even remotely in question by this report. Complete misrepresentation.
You only pay appropriate taxes in the nation state in which you HQ. This allows poorer countries to compete with richer countries, and allows wealth to "drain" into poorer countries whilst providing cheaper services to the richer ones.
Yes, the poor, starving Grand Duchy of Luxembourg :D
There is no "appointed capital". Bruxelles is the closest thing in practical terms, but the location of the institutions it hosts was an early choice that has since been slowly rejected. All new EU authorities are "dispersed" elsewhere, and there is talk of moving the Parliament to Strasbourg full-time, now that it's pretty clear that the French are nowhere as dominant in European institutions as originally feared.
From your own link:
> The seven institutions of the European Union (EU) are seated in four different cities, viz. Brussels, Frankfurt, Luxembourg and Strasbourg, rather than being concentrated in a single capital city.
Not sure from where you got that idea, but in real life it sure as hell doesn't happen that way. I live in one of the poorest countries in the EU, comparatively speaking (Romania), and let me tell you that there's no multi-national company that "drains" money into our country based on tax arbitrage the way countries like Luxembourg and Ireland do. Quite the contrary, lots and lots of companies do the exact opposite, i.e. draining money out of Romania to their headquarters in Ireland, Luxembourg and other (much richer than us) countries of Europe.
The "rich" country then doesn't get the corporation tax, which would help balance the losses incurred by large companies forcing wages down; instead that money goes to the lowest bidding country elsewhere that's not incurring costs from the company's operations.
Allowing this exploit makes the corporation's (and thus their owners/executives) richer at the expense of the workers and ordinary tax payers.
It's right for the EU to act in favour of its citizens in this regard.
Indeed you're right the money drains to the country offering the best deal, which isn't necessarily the poorest as they can't afford to give rich corporations such deals. There's probably a measure of legal framework too - how easy is it too bypass legal requirements by supporting the political party in power, that sort of thing.
No, that's free movement of labor and goods that does that: you can manufacture in PoorCountry for X rather than the X+Y that would cost in Rich Country, then you can sell competitively in RichCountry for X+Y and bag Y.
What happens to Y after that is another matter entirely.