What Thomas would say to Tim

It is all very well for Apple CEO Tim Cook to invoke the great Victorian entrepreneur Thomas Crapper in his furious response to the EU’s back tax demand for €13bn plus interest, but both his (most unusually for a top Apple mind) and US politicians’ (massively usually for them) reaction completely misses the key points of the matter. These are, very clearly:-

* The EU’s state aid rules have been around for yonks. It would take someone seriously uninformed about Europe to not consider them when arranging a private near-zero-tax deal with an EU member government. It also beggars belief that the head of the world’s most valuable company can be straight-faced in uttering that the EU is behaving like a supranational authority on the question. Uh, duhhhhh……exactly what do you think the EU is ? No T Crapper, Sherlock !

* Multinationals from multiple countries have increasingly played fast and loose with corporate taxes for a few decades now. Political authorities like EU competition commissioner Margrethe Vestager are quite right to step up to the plate and shut these practices down. Tax bases have been eroded, making it increasingly difficult for governments to balance their books and to prevent discontent with inequality in their societies from bubbling over. This is not a paen from a socialist – rather, a call to moderation and reform from a confirmed capitalist. Capitalism only works well within a system of wisely-set enforceable rules that strive for fairness: competition policy is a key element of this fairness, so is acceptance of the principle of a reasonable extent of progressive taxation (that is, the richer pay no less a tax rate, and for individuals a higher rate, than the less well off). Another key one that is beginning to be addressed, noticeably this week in the UK, is the need for proper shareholder oversight of executive pay, which has ballooned out of control over the last 30 years relative to the median employee.

* The absurd and bloated US tax code needs major rationalising. Rather than criticising this eminently common-sense European judgement, Republican leader Paul Ryan had best reach across the aisle in Washington and get a majority in Congress behind such an effort. American politicians have nobody to blame but themselves for the massive overseas stashing of corporate cash and the raft of tax-driven “inversion” M&A.

Apple’s flailing reaction to the verdict has certainly not matched the clean simplicity of their beautiful products. The elegant and logical simplicity here is all from Vestager’s team. It might be rather uncouth to keep a cast of a closed hand on your office table with its middle finger raised, as she reportedly does, but good on her, she deserves strong praise.

Vietnam should pay attention here, far away and irrelevant as it all may seem. As an economy that is pursuing a foreign direct investment led growth model – in a sense analogous to Ireland’s – its budgetary revenues will be affected by the machinations on tax pursued by multinationals.

As opined on these pages before, the only practical solution to revenue-destroying tax arbitrage is to reorient corporation tax to a calculation base that starts with in-country sales, applies a company’s average global pre-tax profit margin to it, and takes tax at the country’s desired rate based on this imputed number. TTIP and TTP might be dead for now, but perhaps the same negotiators could instead devote themselves to reaching such a deal on tax. They might suddenly find they are getting praise from the people, rather than brickbats. It would also be a lot simpler to negotiate.

Mekong Man

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