Apple, and Now for Taxes 2.0

A U.S. Senate investigative committee has accused Apple of a complex form of tax avoidance. This is not the first time this has occurred. Microsoft, HP, Google and Amazon are other companies in this sector that have been hit with the same charge. Please note: We are talking about avoidance and not evasion. In essence, the commission has only affirmed what everyone has known for years: Corporate giants utilize their corporate structure to achieve a type of tax optimization. Basically, they divert their profits to those countries that allow the company to pay lower taxes, evading the principle that taxes should be paid where profits are earned.

You do not need to wait for commissions or investigations in order to understand what they are doing. To get a clear picture of the situation, all you need to do is look around: The receipts that I receive when I stream films say, in the fine print, “iTunes S.à r.l.,” while those for the e-books say “Amazon Media EU S.à r.l.” The common element is the abbreviation, S.à r.l., which stands for “Société à responsabilité limitée” (Limited Liability Corporation), a business entity that is used in Switzerland, Luxembourg and France. It is pointless to mention that, in all cases, the headquarters are in Luxembourg.

To be clear, everything they are doing takes place out in the open and is perfectly legal. And it is not only information technology corporations that are doing this, but all companies, including those that are publicly run. Just take a look at the corporate structure of any large Italian company, and you will find cross-ownership and a large number of subsidiaries located in countries that — to differing degrees — are tax havens: the Netherlands, Ireland, Luxembourg, Virgin Islands and so on. However, in the world of information technology, the phenomenon takes on larger dimensions, thanks to the fact that the sales of intangible goods — film, music, e-books, software — lend themselves more than others to this game.

There are two consequences of this move toward tax optimization. The first is the most obvious: the subtraction of money from the revenue of the country of origin. In the case of Apple, the Senate has calculated that the evasion totals several billion euros. At a time when the public debt is the economic obsession of every government, it is obvious that the above-mentioned loss of revenue will cause problems. The second consequence comes directly from the concept of globalization as it has been understood in the third millennium, an understanding that is leading toward lower taxes.

The result is a new category of nations that cannot be strictly classified as tax havens, whose main feature is the opacity of their management and oversight, but which are considered “tax-friendly,” meaning they have less stringent taxes and are more attractive to corporations that want to use them as business bases. Ireland is one country that is leading the way; however, by looking at global figures, you discover that the reduction of taxation to attract capital is everywhere. The result is that even when money remains “in-house,” the government’s proceeds are less.

However, initiatives to fix this problem have been slow to arrive, while proposals to regulate the Internet focus solely on copyright protection, surveillance of communications and other little things which, to be honest, are not necessary. If there has to be a digital agenda, then there will be one. But at least on the European level, the most clear and top priority is to create taxes 2.0.