U.S. Treasury Steps Up Pressure on EU Over Apple Tax Dispute

Is Apple Being Targeted by the EU?
  • Brussels becoming a ‘supra-national tax authority’: Treasury
  • EU’s Vestager to visit Washington for conference in September

The U.S. is stepping up its effort to convince the European Commission to refrain from hitting Apple Inc. and other companies with demands for possibly billions of euros in underpaid taxes.

In a white paper released Wednesday, the Treasury Department in Washington said the Brussels-based commission is taking on the role of a “supra-national tax authority” that has the scope to threaten global tax reform deals.

“This shift in approach appears to expand the role of the commission’s Directorate-General for Competition” that goes “beyond enforcement of competition and state aid law,” the Treasury wrote in the paper. “The cases cited by the commission do not give taxpayers prior notice that the commission would interpret its powers in this way or that selectivity would no longer be a meaningful precondition to a finding of state aid.”

Rules that bar European Union states from giving tax benefits “to selected companies that are not available to others” have been “in place for a long time,” the commission said in an e-mailed statement. When such benefits have nonetheless been granted, “the member state concerned must recover the unfair advantage,” according to the statement.

‘Targeting’ Questioned

The commission has initiated investigations into tax rulings that Apple, Starbucks Corp., Amazon.com Inc. and Fiat Chrysler Automobiles NV. received in separate EU nations. U.S. Treasury Secretary Jacob J. Lew has written previously that the investigations appear “to be targeting U.S. companies disproportionately.”

The commission’s spokesman said Wednesday that EU law “applies to all companies operating in Europe -- there is no bias against U.S. companies.”

Treasury officials are concerned that if European authorities hit U.S. companies with major repayments, they’ll reduce potential tax collections in the U.S., the white paper said. U.S. law allows companies to defer paying taxes on their overseas income until they return those earnings to America -- or repatriate them. Then, the companies can apply credits for foreign taxes paid to reduce their bills. Currently, U.S. corporations have about $2.4 trillion accumulated offshore.

‘Deeply Troubling’

“There is a possibility that any repayments ordered by the Commission will be considered foreign income taxes that are creditable against U.S. taxes owed by the companies in the United States,” the paper said. “If so, the companies’ U.S. tax liability would be reduced dollar for dollar by these recoveries when their offshore earnings are repatriated or treated as repatriated as part of possible U.S. tax reform.”

Treasury’s white paper called that potential outcome “deeply troubling, as it would effectively constitute a transfer of revenue to the EU from the U.S. government and its taxpayers.”

U.S. President Barack Obama has proposed taxing companies’ accumulated offshore profit at a 14 percent rate, well below the U.S. statutory rate for corporate income tax, which is 35 percent. House Republicans have proposed an even lower rate, 8.75 percent, as part of a reform effort aimed at ending the U.S.’s global approach to taxation. (It’s the only developed economy that attempts to tax companies’ foreign earnings.)

Trump’s Proposals

Republican presidential nominee Donald Trump proposes taxing companies’ accumulated earnings at a 10 percent rate, while ending their ability to defer paying such taxes. Trump also wants to lower the corporate tax rate to 15 percent. Democratic nominee Hillary Clinton hasn’t specified any proposals related to international corporate taxes.

The commission may wrap up a probe into Apple’s tax deal in Ireland as soon as next month. Apple spokesman Josh Rosenstock declined to comment beyond the company’s earlier statement to an EU tax panel in March that it had paid all of its taxes due in Ireland.

European Union antitrust chief Margrethe Vestager, who met with U.S. Treasury Secretary Jacob J. Lew in July, is due to visit Washington next month to speak at a Georgetown Law conference.

The conflict over trans-Atlantic tax practices escalated in February as Lew complained to European Commission President Jean-Claude Juncker that U.S. firms are unfair targets of state-aid investigations. The Treasury secretary’s letter came after EU regulators focused on fiscal pacts international companies got in Europe and opened probes into Apple’s tax affairs in Ireland, and tax arrangements that Amazon and McDonald’s Corp. got in Luxembourg. The companies all say they acted within the law.

For more on Apple’s tax structure from Bloomberg Intelligence’s Matt Larson, click here.

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