Apple Inc. (NASDAQ:AAPLB), it turns out, doesn’t want to pay the European Union $14 billion in taxes any more than it wants to bring cash back to the U.S. and pay this country’s 35% corporate tax rate. What’s a global tech giant to do?
For starters, the company took a hardline approach with its lead lawyer telling Reuters Apple was a "convenient target" for the European Union antitrust chief who was driven by "headlines."
The U.S. Versus The EU Versus Ireland
This kind of talk resulted in the Obama administration complaining that the European Union was trying to take money (taxes) that should have gone to the United States. The EU Competition Commissioner, had no new response but did publish an edited text of her original judgment against Apple.
Meanwhile, Apple has been allowed to pay a tax rate in Ireland of 3.8% on about $200 billion in overseas profits for the past 10 years. This is a fraction of tax rates in countries where Apple’s products are designed, made and sold.
Corporate Tax Rates At Issue
The fight is all about taxes. Corporations, especially those with global footprints, work very hard to keep profits in places where taxes are lowest. For Apple right now that appears to be Ireland mostly where the EU Competition Commissioner says the rate Apple pays is 0.005%. It is likely more than that but certainly far less than what the company would pay for profits kept in the U.S.
President-elect Donald Trump has said he wants to lower corporate tax rates. Some argue corporations should pay taxes at all. Still others argue that in fact many do not, causing the anti-corporate tax crowd to suggest the U.S. would be better off if the policy were made official and applied to everyone – not just those with slick lawyers.
The Argument Against Corporate Taxes
According to some experts, corporate tax rates lower growth. When a U.S. company considers a new project it assumes it will have to pay a 35% tax rate on profits. In many cases, the argument goes, this discourages many worthwhile projects that don’t even get off the ground.
This, in turn, lowers economic growth and further investment. To make matters worse, many say, consumers pay corporate taxes anyway. Taxes are added to the cost of the product and paid by the consumer.
Lower May Be Better
Many argue that eliminating corporate taxes is impractical but that lowering the U.S. rate makes sense because it would encourage companies like Apple, General Electric Co. (NYSE:GEC), Microsoft Corp. (NASDAQ:MSFTB) and others to repatriate offshore cash, pay taxes on that money and invest in projects (and jobs) in the U.S.
The debate will continue as it has in the past. Whether the corporate rate is lowered or not will depend on congressional action or lack thereof.