Hearing Europe’s top anti-trust regulator say that Apple owes Ireland €13 billion in back taxes, I thought of the Belgian surrealist artist, René Magritte.
When Magritte said “Everything we see hides another thing,” he could have been talking about corporate taxes. Actually though he was referring (below) to “The Son of Man.”
Apple’s Low Taxes
The reason for Apple’s back tax bill is a special deal with Ireland. As a result of arrangements offered in 1993 and 2007, Apple paid close to a 4% rate on its European profits for more than a decade.
Yes, that 4% rate could be less and the facts are much more complicated because of non-taxed business entities that Apple says were legal. However, the basic point is that many of us are aware of Ireland’s already low 12.5% corporate tax rate. What we could not see is that large firms pay less.
Other Low Tax Countries
Because Ireland is frequently mentioned as a corporate tax haven, we might forget other countries that offer similar benefits. With green showing higher tax countries and blue, those with lower than average rates, Ireland is a darker blue.
Ranging from Bermuda’s 0% to 55% in the United Arab Emirates, the (weighted) world average corporate tax rate is close to 30%. Relatively high, the top U.S. marginal rate (including federal, state and local) is close to 40%.
We should note that Apple is not alone. The Commission is also questioning tax deals received by Fiat (Luxembourg), Starbucks (Netherlands), Amazon (Luxembourg), AbinBev (Belgium) and McDonald’s (Luxembourg).
Our Bottom Line: Real Corporate Tax Rates
It is likely that the single corporate rate we associate with a country hides what firms really pay. So yes, as Magritte told us, what we see hides something else.
Also hidden are the state pension funds and retirees’ investments and college nest eggs that depend on firms like Apple minimizing taxes and maximizing profits. But that is a topic for another day.
My sources and more: This NY Times article is a good starting point for more Apple/Ireland/tax deal detail while the Tax Foundation and KPMG convey the bigger picture. Continuing with FT and WSJ, I found each article included some new detail or insight about corporate taxes.