EU Tax Ruling on Apple a Sign That U.S. Firms Targeted, Lew Says

  • Action undermines economic cooperation: U.S. Treasury chief
  • Lew hopes next president makes progress on tax reform

Jacob Lew speaks during a discussion in Washington, D.C., on Aug. 31, 2016.

Photographer: Andrew Harrer/Bloomberg

U.S. Treasury Secretary Jacob J. Lew said the European Union is singling out American companies for tax investigations as shown by its ruling this week for Apple Inc. to pay Ireland more than 13 billion euros ($14.5 billion) in back taxes.

In a strong signal the European Commission seeks to end member nations’ policies that may give certain companies unfair advantages over others, the regulator in its decision on Tuesday said Ireland illegally slashed Apple’s tax bill. It was a record crackdown that risks straining tensions with the U.S.

“I have raised the issue that the pattern of the action appears to be highly focused on U.S. firms,” Lew said Wednesday in response to questions after a speech in Washington. “They point to some small actions against non-U.S. firms, but the largest actions do appear to be aimed squarely at our tax base.”

Lew said he understands frustration with slow progress of tax reforms in the U.S., but “what I don’t think is right is for these issues to be addressed in a way that undermines the spirit of economic cooperation and is inconsistent with well-established principles in tax law.”

Selective Treatment

According to the European Union regulator, Apple, the world’s richest company, received selective tax treatment from Ireland that gave it an unfair advantage over other businesses. The EU ordered the largest tax penalty in a three-year campaign against corporate tax avoidance. Apple and Ireland both vowed to fight the decision in court.

The U.S. Treasury has repeatedly pushed back hard against EU state-aid probes, saying last week that 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.

Lew said Wednesday that tax laws should make it “impossible” to escape taxes and he sees a growing consensus in Congress to move forward with tax reforms. He is “hoping” to see action early in the next administration.

The timing of Europe’s decision, ahead of the U.S. presidential election in November, means tax reform may become a more prominent issue. Republican nominee Donald Trump has proposed taxing companies’ accumulated offshore profit at 10 percent, compared with the current top corporate rate of 35 percent. The taxes that U.S. companies pay abroad can be credited against the taxes they owe when they bring offshore profits home -- reducing their effective tax rate.

Lew said that he’s warned many chief executive officers to be careful when maximizing tax advantages. “There’s a real impact on reputation and the environment for business when you have issues like companies that avoid taxation,” he said. “There is a need to balance what decisions are made at a firm level."

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