Caribbean Times 89th Issue - Friday 9th September 2016

12 c a r i b b e a n t i m e s . a g
Friday 9th September 2016
US and EU in harmful tax competition
Over the last few weeks,
a trans-Atlantic war of words
has been going on between
the US Treasury and the European
Union Commission
(EC) over what amounts to
‘harmful tax competition’.
That’s the infamous
phrase coined in the Organisation
for Economic Cooperation
and Development
(OECD) when, in the late
1990’s, over 30 small states,
including ones in the Caribbean
were targeted as ‘tax
havens’.
The argument then was
that countries with low or
no tax regimes, in which EU
and US companies operated,
were depriving the EU
and the US of taxes on those
companies.
Before it was absolutely
rejected – particularly by the
George W Bush administration
in the US – the OECD,
urged on by its EU members,
wanted to set tax rates globally
so as to avoid tax competition.
Amazingly, competition
in other areas where they
enjoyed advantages over
developing countries was
promoted, but in financial
services, where small countries
were beginning to make
a mark, competition was rejected.
Small countries, around
the world, had to comply
with the OECD’s tax guidelines,
including automatic
provision of tax information
of US and EU companies
and persons, or face
sanctions. Those sanctions
started with the black-listing
of countries described
as “uncooperative” but they
extended to the threat of cutting
off banking relations
– something that is being
witnessed now with the socalled
‘de-risking’, a process
by which US and EU banks
have been withdrawing essential
correspondent banking
relations from banks in
several regions of the world,
particularly the Caribbean.
Over the period since the
late 1990’s when the OECD
introduced its concept of
‘harmful tax competition’
and created rules that the developing
world was forced to
adopt, the financial services
sector of the Caribbean, especially
the off-shore sector
has struggled to survive.
The off-shore sector collapsed
completely in some
countries and declined considerably
in others, resulting
in loss of revenues and employment,
and setbacks to
their economies.
Against this background,
the spectacle of the EU fighting
with one of its member
states, Ireland, over tax
competition and then the US
weighing-in to protect its
own tax revenues, is an interesting
development in the
saga of ‘harmful tax competition’.
The cause of it all is that
ubiquitous company, Apple,
whose products adorn
hip pockets and handbags,
office desks, home studies
By Sir Ronald Sanders
and even bedrooms in many
parts of the world.
To minimise on its tax
payments, Apple established
its European operations in
Ireland, a member state of
the EU, for several good reasons,
principally a low corporate
tax rate of 12.5%.
However, the EU, where
the average tax rate is 22%,
has been investigating
whether Apple’s tax arrangements
with Ireland, which
allowed the company to pay
very little tax on income
earned throughout Europe,
amounts to state aid.
The Irish government denies
that allegation, saying
that its tax structure applies
to everyone and is law in Ireland.
This has set-up a major
confrontation within the
EU. The first dispute will be
whether tax competition is
allowed between members
of the EU or whether they
are obliged to adhere to a
harmonised tax structure.
The second argument
will centre on who is the offender
if the rate applied to
Apple amounts to state aid.
Was it Apple or the Irish
government?
Therefore, who has to
pay the US$19 billion in unpaid
taxes that the EU claims
is due?
Not Apple, according
to its Chief Executive Officer,
Tim Cook. He calls the
EU investigation “political
crap”.
And, not the government
of Ireland which says it has
done nothing wrong.
Into this minefield, steps
the US government in the
cont’d on pg 13