Apple defends itself before the U.S. Senate for having hardly paid any taxes. German politicians are proud that they alertly helped the EU economize.
In the middle of the crisis, the EU discovers a new source of income: taxes. In advance of the Brussels summit, EU Commission President José Manuel Barroso said he wants a “political commitment” from member nations to fight tax fraud.
At the same time, on the other side of the Atlantic, they want to get tough in other ways. On Tuesday, Apple CEO Tim Cook had to justify himself to the U.S. Senate. The accusation: The computer company was evading tax payments to the U.S. Treasury, amounting to billions with the help of subsidiaries in tax oases and with Ireland leading the way. For example, Apple transferred the rights to intellectual property to foreign countries to avoid paying taxes on them in the U.S.
Other U.S. companies, like Google and Starbucks, have also attracted attention for similar tax savings measures. Apple defends itself by having always dutifully paid the requested taxes in the respective countries. Even if this tax rate sometimes amounts to zero, nothing about it is illegal. The Senate is not claiming that at all. In a report, it instead describes the legal loopholes that the companies aggressively exploit and that are worth closing.
And yet, the U.S. government promoted such tax evasion for years. So, they permitted U.S. companies to transact export business from tax oases like Bermuda. Because of lower tax expenditures, companies like Boeing or Caterpillar could offer their products at more favorable prices in the world market. The World Trade Organization first forbade this type of export promotion for firms of the EU.
Different German federal governments also completely turned a blind eye when it came to the tax conduct of domestic firms. A “tax optimization,” by exploiting the numerous loopholes, was considered by circles in the parties close to the economy a legitimate and, in international competition, also an urgently necessary measure to lower costs, up until today. That the nation was losing income was ignored by the parties in government and the opposition.
The red-green government approached the economy with a radical lowering of the business tax in the tax reform of 2000: Otherwise capital — designated the “timid fawn” by Karl Marx — would have fled to foreign countries was the justification at the time.
To Ireland for example, which attracts investors with a business tax rate of only 12.5 percent. The realization that one could also close the back door through which the timid fawn is escaping to foreign countries has only begun to be implemented since the outbreak of the finance and bank crisis and the associated national debt.
In the meantime, the tax rate in Germany, including local business tax, is just under 30 percent — instead of the roughly 52 percent at the turn of the millennium before the red-green tax reform. “That we have lowered the tax burden for companies, I am still proud of that today,” a prominent ally of then-Chancellor Gerhard Schröder declared a short while ago. But this tax rate can also be weaseled out of by “tax optimization.” At times, the German treasury took in corporate taxes at the level of the tobacco tax.
Subsidiary in Belgium
Figures of the Belgian National Bank have just given an indication of how German firms minimize their tax burden: They establish a subsidiary in Belgium, transfer equity and charge fictitious interest for it that they use as a tax deduction.
According to information of Der Spiegel [German news magazine], an Antwerp BASF* subsidiary thus realized a tax rate of only 2.6 percent. A Belgian subsidiary of Volkswagen is said to have collected a profit of 153 million euros tax-free. Everything legal, emphasize the firms. Belgian law only takes into account the “business principle of tax neutrality,”** reads a statement from Bayer.
It is nevertheless no coincidence that the subsidiaries in tax-advantaged countries account for the highest profits. To this end, companies shift their taxable profits into foreign countries. This tax structuring is for the most part legal — for example, if Ikea remits royalties to the Dutch Ikea parent company for every Billy bookcase sold. In the Netherlands such revenue remains practically tax-free.
In Germany, however, the profits turn out to be correspondingly lower because of the fees — and with them also the tax payments. The coffeehouse chain Starbucks paid no corporate tax at all in the past years. That comes out of an exchange of letters between acting Green Party leader in the Bundestag Kerstin Andreae and Starbucks Coffee Germany GmbH. The firm writes, “Starbucks Coffee Germany earned no taxable income and therefore had to pay no corporate taxes according to German legislation.”
*Editor's note: BASF is a chemical company headquartered in Germany.
** Editor's note: Correctly translated, this quote could not be verified.