News today that Apple is being investigated by the UK taxman over the payment or non-payment of corporation tax (the corporate income tax to Americans). This follows hot on the heels of news of a similar investigation into Amazon in the country. The basic bone of contention is that both companies sell vast amounts of material in the country but seem not to be paying any tax while doing so:
Apple faces tax scrutiny in the UK
The Government is under pressure to launch a crackdown after it emerged Apple paid just £10m in British tax in 2010 despite clocking up sales here worth an estimated £6bn.
Well, yes, this is true and it is all entirely legal.
Accounts for the iPad maker's three main British subsidiaries show the Californian group paid just £10.3m in corporation tax in the year to September 25, 2010, according to reports. Apple's British turnover is thought to account for a tenth of worldwide sales, which hit $100bn (£63bn) in its last financial year. The US giant avoids paying higher taxes by using foreign subsidiaries, such as in Ireland and the British Virgin Islands.
The revelation comes less than a week after online retailer Amazon disclosed it was facing an investigation by British tax authorities over allegations it recorded almost £8bn of sales in Britain over the past three years without paying corporation tax.
It is not only legal it is working precisely the way the system is supposed to work, the way it has been set up to work.
You need to understand the basic driving force underlying the European Union. The declared end game is that there should be a new nation, Europe. One that is a political and economic union. Those who promote this are well aware that much as we all despise our own home grown politicians we hate foreign ones even more. Thus that political union is going to have to wait a little bit. But the economic union, that can be pushed ahead. And at the heart of that idea is the "Single Market".
The essence of that single market is that anything which it is legal to sell in one part of the EU is legal to sell in any other part. Without interference, without obeying special local rules, if it's good enough for Germany then it's good enough for Greece. Add to that the complete freedom of movement of goods, companies, capital and people.
That's just the situation we are in as the background. Now, what this actually means is that in order to sell product in the UK you do not need to be a UK company. You don't have to have a UK subsidiary, you don't even need to have an office in the country. You just need to have a company registered somewhere in the EU. Anywhere at all: then you can sell to the English (or British if you prefer). Of course, it is only British companies (well, OK, you can have a company in England and Wales, Scotland or Northern Ireland, as they all have their own legal systems but this is a little too much detail perhaps) which pay British corporation tax. There's no earthly reason why a German or French one should so so: they pay German or French corporation tax.
Sure, the VAT (the sales tax) must be paid in each individual country at that country's rate, the rate of the country in which the sale takes place, not where the company is. Any other duties (tobacco or alcohol taxes say) are treated the same way: it is the country of delivery whose rates apply and the country of delivery that gets the money.
But corporation tax? That's paid in whatever country you've set the company up in. As it happens Amazon sells everything from Luxembourg (a nice low corporate tax rate) and Apple does most of it from Ireland (again, a nice low corporate tax rate). This does indeed have the effect of lowering the corporate tax rate for these companies: but it's still not tax dodging. For the system has been deliberately set up by the EU to make it easy for companies to do this. We want you to treat the EU as one market, to only have one company, one structure, and use that to sell to the entire continent.
The British investigation into this isn't going to go anywhere at all: it's a little bit of a smokescreen that "we'll look into it" because people are making a fuss. The companies that pay corporation tax are in Luxembourg and Ireland and Luxembourg and Ireland are where they pay tax. That's the deliberate point of the legal system surrounding company structure in the EU: the companies are doing exactly what they're supposed to be doing.
