Taking
Advantage of Corporate Taxes
In Europe multiple
investigations are being conducted involving corporate tax laws. The week of
October 22nd, 2015, in Luxembourg and Netherlands, the European
Commission ruled that subsidiaries of multinational corporations in the two
countries were paying too little of corporate tax. Multinational corporations such
as Starbucks and Chrysler received these light tax deals because these
countries were trying to enhance foreign direct investment through “state aid.”
After
a proper investigation it was found that these multinational companies were
taking this low corporate tax rates as preferential treatment. According to the
article one of Chrysler’s chairman, John Elkan, sits on the board of The
Economist’s parent company. These two multinational companies ended up
underpaying corporate taxes at unfair amounts.
The
European commission is currently conducting similar investigations on Amazon
and Apple. Lawyers believe that if multinational corporations have a choice
between taxes and court they will always choose taxes. In conclusion these
multinational corporations were gaining an advantage by gaining a low corporate
tax rate. As the European commission investigates the situation, I believe that
the shift in corporate taxes in Europe will even the playing field of
multinational corporations in Europe.
http://www.economist.com/news/finance-economics/21676785-corporate-tax-europe-set-change-european-commission-attempts-outlaw
3 comments:
Earlier this week, I saw a news piece related to this scandal pop up in my yahoo feed and it very much so interested me. After doing some more research on this incident of corporate tax avoidance on my own, I find it interesting as to why the European Union is now cracking down on these multinational corporations when countries are raising objections. In a separate article I read, it states that the European Union has cracked down on these tax evasions in the hopes of strengthening their "determination to counter increasingly sophisticated tax strategies used by multinational corporations".
While the reasoning of the European Union did seem interesting to me, one thing in particular that I found interesting in the blog post was the following: that companies would gladly choose taxes over court. In my opinion, I feel that this is to allow this situation to move past them. If they are caught up in court, that is time not spent growing the company. I do not think that paying the taxes necessarily means that they did anything wrong, but they are willing to move past the issue and onward.
I also found it interest that in the same article I read, it stated that "low across-the-board taxes are not a violation of European Rules...". So, the question I want to raise is "why has this become an issue now when what they are doing isn't deemed illegal by the European Union?"
Link : http://www.nytimes.com/2015/10/22/business/international/starbucks-fiat-eu-tax-netherlands-luxembourg.html?_r=0
A lot of large corporations go abroad to have lower tax rates. Look at Apple, for example. They have huge headquarters in Ireland, and don't pay the usual 12.5 percent Irish tax rate. How? The Irish law says the company pays taxes to where it's managed (so in Apple's case, the US), not incorporated. And because of that, Apple basically has tens of billions of unpaid tax money (http://appleinsider.com/articles/13/10/15/ireland-looks-to-close-loophole-apple-uses-to-avoid-high-us-taxes) old article, but it explains it a bit better.
I wonder if Europe will actually enforce these new taxes. And if they do, what the percentage would be. If it's beneficial, would these corporations move to other countries that don't have a comprehensive tax system? I think that could be a high probability. I'm just curious to see what this European commission comes up with.
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