What Will These Grumpy Governments Do About Tax Evasion?
It seems government officials around the world are all grumpy about tax evasion together. U.S. officials grilled Apple (NASDAQ:AAPL) on the subject Tuesday, and now European officials will discuss ways to close down loopholes that could be costing them trillions in tax dollars.
Apple was called out for having some $37 billion in overseas profits that were only taxed at a rate of 1.9 percent because of a clever tax scheme that runs most of the money to Ireland, where Apple receives a much lower tax rate than it would almost anywhere else. With business growing in many foreign countries, now is an important time for governments to make sure they have tax laws right. When Apple was called into the Senate Permanent Subcommittee on Investigations, it wasn’t called in because it was in trouble, but rather because the committee wanted to see Apple’s take on the tax systems.
Officials in Europe were supposed to meet to discuss energy policy, but the topic changed because of the various investigations going on in regard to the tax evasion — both legal and illegal — of major companies. As the euro zone has experience economic crisis in recent years, it was significant to find out that the region had been losing an estimated 1 trillion euros a year because of tax avoidance schemes.
Apple isn’t the only one making government officials grumpy. Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG) have both been under significant scrutiny for their practices. Amazon was reported to have only paid $3.7 million in taxes on $6.5 billion in sales in 2012 — a rate of less than 0.1 percent. Google was raided in France in 2011 to see if it had conducted sales work and could be taxed, and it was subsequently asked to pay back taxes of 1.7 billion euros.
A common theme for these companies is saying that they are following the tax laws wherever they are based. Apple said it was following the law and paying what was due on Tuesday, and it may be true that these companies are following the rules, but as Republican Senator John McCain put it, they are violating “the spirit of the law.” Loopholes are a way of getting around the rules without actually breaking them, and that’s a significant point for these companies.
It will take a strong push by the European Union leaders meeting Wednesday to make the changes necessary to take back those trillions in tax, and it might not happen very quickly. It will be important to make sure that various countries work together to close down loopholes in synergy, otherwise companies may be able to find other places to go where they can still enjoy the low tax liability. British Prime Minister David Cameron said, “We have got to make sure as we set those tax rates that companies pay taxes, and that means international collaboration, the sharing of tax information.”
While the meeting officials don’t look to be doing a bunch of name calling and finger pointing against the companies taking advantage of tax loopholes, they are likely to take some action toward setting an agenda to see that taxes are paid as they should be. The result could have a significant impact on how Apple, Google, and Amazon conduct their business and how much foreign revenue they have floating around in the future.
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