One bad Apple

There are some advantages in getting old. One no longer cares so much what other people think; it is easier to be oneself. That’s one. One can sit in the sun without sun cream and not look like a lobster. That’s another. There must be others, but I can’t remember them right now. That’s one of the disadvantages.  

There are many other disadvantages, too numerous to list. One of them is that, from time to time, one realises that the world one inhabits is not the world one thought it was, or at any rate not the world it appeared to be when one was younger. There is probably a word for this, and it is very likely German.

This could be the cue for a riff on the nature of appearance and reality. Has the world ever been what it appears to be? Why does what it appears to be differ from one person to another? But let’s leave the metaphysics to one side and focus on one concrete example: the tax arrangements of Apple Inc. Or the non-tax arrangements, to be precise.

At the end of August, my new pin-up, Margrethe Vestager, the EU Commissioner for Competition, ordered Apple to pay Ireland €13 billion in unpaid taxes. In the process, she revealed a corporate tax arrangement that one would like to think is unique, although it almost certainly isn’t.

Apple has been allowed to channel its sales and profits in Europe (and in India, Africa and the Middle East, one should remember) through a single country, Ireland, which happens to have one of the lowest rates of corporation tax. Nothing new about that, you may say. Why, Jean-Claude Juncker encouraged that for years when he was Finance Minister and Prime Minister of Luxembourg, before he became President of the European Commission.

But, in 2011, only 0.03% of these profits remained in this low tax haven. The remaining 99.97% was diverted to a no tax haven: to an illusory headquarters. ‘This so-called head office existed only on paper,’ said Margrethe Vestager. ‘It had no employees, no premises and no real activities… [This] head office was subject to no tax in Ireland or elsewhere.’

This is the point at which I feel disconnected from the world I now inhabit. Shuffling profits around to minimise taxation? Commonplace. Inventing a fictitious head office in a country that appears not to exist and avoiding tax altogether? Well, that’s a new one on me. Nor did the surrealism stop there.

The Irish Government decided it did not want the money. €13 billion? No thanks. We’ll do without it. In fact, we’re so angry you’ve given it to us that we’re going to appeal against your ruling. Yes, we know that it would pay for our health service for a full year, but you can keep it, thank you very much.

No doubt the Irish Government thinks it has a long-term economic reason for this stance, and maybe it is right, which is worrying in itself. Far more disconcerting was the immediate reaction of the US Government. According to The Times: ‘In a scarcely veiled threat, the White House warned that Brussels’ decision could undermine efforts to create a fair international tax system.’

It is difficult to think of anything less fair than a multi-national company paying zero tax on profits of billions of euros, or anything more fair than the EU seeking to rectify this. At first, I thought we had reached the point where a Democrat-led US Government had been converted to the idea that an American company should pay no tax. So incestuous has the relationship become between governments and business that, actually, I found it possible to believe this.

It now turns out that I was misled. It is indeed true that the US Government thinks that American corporations should pay little or no tax overseas, but only so that it can snaffle the revenues for itself. The EU’s mistake was not in fining Apple €13 billion, but in deciding that the sum was owed to Ireland rather than to America. ‘A fair system’ turns out to mean a system that is fair to America. In America’s opinion.

Talks continue on rationalising the international tax system, but how any proposed reform can be universally agreed is open to doubt. George Osborne wanted tax to be paid where the economic activity takes place. This seems an entirely reasonable suggestion, but it won’t sound reasonable to America. And their suggestions won’t sound reasonable to us. So there will be no agreement and loopholes big enough to swallow billions will continue to exist.

In the quaint world in which I grew up, it was accepted by almost everyone that governments should help the poor, provide basic services to the nation and encourage the spread of wealth throughout the community. It was also accepted that a fair level of taxation, both corporate and individual, was required to finance this. What constituted fair, and the point at which taxation became counter-productive, were argued about then as much as now. But no one thought that zero was fair.

The taxation of companies is now in the hands of lawyers and accountants, not of governments. The taxation of wealthy individuals is in the same clammy hands. The taxation of people who are lucky enough to be self-employed allows plenty of scope for the legal minimisation of tax. Increasingly, governments rely on taxes they can deduct at source (which means VAT for everyone and the PAYE system for those who are formally employed), or which they can levy on companies that operate entirely within their jurisdiction. This is where the brunt of the tax burden falls, which is a large part of the reason why average income earners see little improvement in their living standards.

It is too trite to say that something should be done about this. Something should have been done years ago, and it has not been done by governments of any party, in any country. To say that it is time for government to become big again is not to argue for higher taxes and more intervention, but to say that governments need to become more powerful than lawyers and accountants, more powerful than multi-nationals and wealthy individuals. Powerful enough to enforce the same rules on everyone.

In the meantime, my consolation is that I no longer have to suffer condescending remarks from Mac users. I now feel proud never to have bought an Apple product. At least Bill Gates has done something worthwhile with his profits.