Armstrong Williams: Americans Finally Get a Bite at the Apple

Perhaps one of the most underreported stories of recent weeks was the European Union’s ruling on Apple’s tax arrangement with Ireland. After a three-year investigation, the EU levied what is believed to be the largest and most controversial tax penalty in its thirty year history. The implications of this are obviously of great importance to Apple and to the Irish government – but it could also have significant implications for the U.S. election cycle. 

First of all, let’s make it clear. Apple got a sweetheart deal from Ireland in return for using the country as a tax haven. While the Irish government has been traditionally business friendly, the deal with Apple apparently allows it to pay essentially zero taxes, while employing approximately three thousand workers in the country. It is an even bigger sweetheart deal when one considers that similar low tax jurisdictions – Isle of Man, Bermuda, Panama, etc. – are not members of the E.U. or NATO, both of which provide both military and diplomatic protection, not to mention robust legal protections that smaller tax havens cannot provide.

An obvious question that needs to be asked is why does the U.S. tax the overseas profits of U.S. corporations in the first place? And the answer is quite obvious – the U.S. projects global power in a way that paves the way for corporations to do business abroad. That is to say, that the U.S. military, diplomatic and economic power protects U.S. corporations from expropriation, fraud, intellectual property theft, and contractual disputes involving foreign partners and governments.  In fact, some of the conflicts the U.S. has engaged in the Middle East over the past decade have been characterized by some as ‘resource wars’ – protecting U.S. oil companies and defending the ‘pretro-dollar’ against incursion from China and Russia. This relationship between U.S. corporations and the U.S. government has been traditionally very successful, and the government expects corporations to pay their share of the burden for enforcing contracts and agreements abroad.

But the second question – one that is not so obvious, is whether these are really ‘overseas profits.’ It really begs the question, for example, whether Apple’s estimated $215 billion held in overseas accounts really resulted from profits earned outside the United States. After all, the U.S. is by far the largest single market for Apple’s products. Furthermore, Apple pioneered ingenious tax accounting schemes including the “Double Irish With a Dutch Sandwich,” which routes profits through various subsidiaries in Ireland and the Netherlands before ultimately parking them in Caribbean accounts. What seems to be going on is that Apple (and other multinationals) have been able to shift profits actually made in the U.S. to overseas subsidiaries, through the use of ‘licensing’ schemes.

In response to the EU’s move, the U.S. Treasury quickly came to Apple’s aid. In a white paper the U.S. Treasury released after the EU’s ruling, the Treasury department said, “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.” This is serious language. The U.S. government clearly believes the EU’s tax decision amounts to an illegal appropriation from a U.S. corporation. But the paper goes even further to argue that “There is the 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.”

What? The U.S. government actually believes it has a reasonable chance to collect on Apple’s overseas tax liabilities? That would be news. Why in the world would a company repatriate those profits at a tax penalty of up to 40%, when it could merely park the profits in Europe at the EU’s effective rate of less than 15%? The answer ultimately comes down to the value of the protection the U.S. government can provide to Apple and other multinationals. And in that respect, the U.S. has far more leverage globally than the EU. Apples being compared to Apples (no pun intended), the value of the U.S. government brand is higher.

What does this all mean for the U.S. taxpayer? In essence, until Apple and other global corporations actually do repatriate their profits, other taxpayers will be on the hook for the costs of defending Apple’s global market advantages. U.S. soldiers will pay the price in terms of fighting resource wars. Most critically though, U.S. workers pay the price in terms of jobs shipped overseas and lack of reinvestment in plants and equipment in America.  

In essence, the EU’s move against Apple publicly forced the U.S. Government’s hand. By coming so quickly and forcefully to Apple’s aid, the U.S. Government raised the issue of why Apple has not paid its fair share. In response, Apple’s CEO, Tim Cook has apparently decided to repatriate some of the company’s profits over the next few years.

By exerting its comparable taxation authority as leverage, the EU did the American taxpayer a huge favor. Apple and other multinationals will ultimately have to be accountable to the American taxpayers. This turn of events marks a wonderful opportunity to bring the issue of corporate profits repatriation to the political forefront. The bottom line is that companies can no longer afford to do nothing. Now is a great time to start negotiating a better deal for Americans.

Read Armstrong Williams, author of the brand new book Reawakening Virtues, content on RightSideWire.com and Come join the discussion live at 6-8 p.m. and 4-6 a.m. est. on Sirius/XM UrbanView 126 , Become a fan on FaceBook, and follow him on Twitter.