CCH Tax Day Report
The European Commission (EC) announced its finding August 30 that Ireland granted unauthorized tax benefits of up to 13 billion euros (14.6 billion dollars) to Apple, Inc. “This is illegal under European Union (EU) state aid rules, because it allowed Apple to pay substantially less tax than other businesses,” the Commission announced. According to EC Commissioner Margrethe Vestager, the role of EU state aid control is to ensure Member States do not give selected companies preferential tax treatment.
Republican and Democrat lawmakers alike have been weighing in on the controversial ruling, voicing concern about its impact on U.S. businesses, taxpayers and federal revenue. While expressing concerns, bipartisan taxwriters continue to speak out on the pressing need for tax reform after the EU decision.
“This decision is awful,” House Speaker Paul Ryan, R-Wisc., said in a statement. “It is a direct violation of many European countries’ treaty obligations…and yet another reason why we need to fix our tax code,” Ryan said.
“The EC is blatantly attempting to take advantage of the antiquated U.S. international tax system, and at the end of the day, it’s U.S. taxpayers footing the bill,” Sen. Rob Portman, R-Ohio, said in a statement. “This decision is another indicator of the urgent need for international tax reform.”
Senate Finance Committee (SFC) Chairman Orrin G. Hatch, R-Utah, along with other bipartisan SFC members, has expressed concern with the EC state aid investigations in a number of letters over the past year to Treasury Secretary Jacob Lew, an SFC aide told Wolters Kluwer August 31. In a letter sent to Lew earlier this year, bipartisan SFC lawmakers “warned the European Union’s (EU) state aid investigations could lead to retroactive taxation on multinational enterprises and have an adverse impact on U.S.-based companies.”
Hatch said in an August 30 statement that the EC’s decision attempts to rewrite already existing tax policies. “Any ruling that is inconsistent with international tax standards and harms American business abroad with retroactive measures is inherently unfair and encroaches on U.S. tax jurisdiction,” he added.
SFC ranking member Ron Wyden, D-Ore., said in a statement that the EC stepped outside the terms of existing bilateral tax treaties in issuing the decision. “This ruling could set a dangerous precedent that undermines our tax treaties and paints a target on American firms in the eyes of foreign governments.”
“The EU is attempting to penalize American companies for organizing their businesses in a way that legally minimizes their tax burdens,” according to a report issued August 30 by the Senate Republican Policy Committee. “The EU is attempting to retroactively increase the tax burden on American companies, which will increase U.S. deficits.”
House Ways and Means Chairman Kevin Brady, R-Tex., too, spoke of the need for tax reform while deeming the EC’s decision “predatory” and a “naked tax grab.” “It is another extreme consequence of our broken tax code that continues to hurt American workers,” Brady said in a statement. This is occurring because our uncompetitive tax code strands American profits overseas instead of allowing businesses to bring those profits home to reinvest in our jobs, research and growth.
Treasury Secretary Jacob Lew also expressed the need for tax reform while stating his concern over the EC ruling at the Brookings Institution August 31. While primarily speaking on matters discussed at the G20 Leaders’ Summit, including fossil fuel subsidies and the Treasury’s view that they are bad for the environment and business practices, Lew also remarked on the EC Apple ruling.
“Our concern is that it (EU) is using a state aid theory to make tax law,” Lew said. “It is doing it in a way that is retroactive and inconsistent with established principals of tax law, and as the head of the U.S. tax agency, I am concerned it reflects an attempt to reach into the U.S. tax base to tax income that ought to be taxed in the U.S.”
Lew stated that he has previously raised the issue that the EC has a “pattern of actions that appears to be highly focused on U.S. firms,” when asked if he believed U.S. businesses are being targeted by the EC. The focus does appear to be “squarely at our tax base,” he said.
“I share the view that our tax laws should make it impossible for income to go taxless; the tax reform proposal we have put forward would make it impossible to park income overseas to avoids taxation,” Lew said. “Inversion may be legal, but it’s wrong.” Lew stated that he is committed to working through issues regarding inversions, and that “the right way to deal with it (inversions), as with stateless income, is through the process of tax reform.”
“Ultimately, Congress needs to act,” Lew said. “I have been encouraged in the last 24 hours, as I have heard more members on both sides of the aisle talk about the need for tax reform than I have in more recent times.”
The White House also commented on the Obama Administration’s concern regarding the EU decision. “The kinds of payments that were contemplated by the EU decision are merely a transfer of revenue from U.S. taxpayers to the EU,” White House Press Secretary Josh Earnest said in a recent press briefing. “I think that is the crux of our concerns about the fairness of this kind of approach.”