Caribbean Times 89th Issue - Friday 9th September 2016

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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
Friday 9th September 2016 c a r i b b e a n t i m e s . a g 13 Do accredited universities give out honorary degrees? By ABNAB There have been many questions raised about honorary degrees with many persons wondering if accredited universities issue such awards. Yes, many accredited universities chose to award honorary degrees; honorary doctorates in particular. It is important to remember however, that the award is, as the name implies, an honorary one. The recipient did not qualify for the award by passing any prescribed examinations and in fact might not have even attended that particular university. Traditionally, universities have used the award to honor outstanding members of the community who have made significant contributions to society in their particular field of endeavor. Awards are also given to persons whose lifetime achievements have impacted the lives of many individuals. It is awarded as a mark of esteem – for the cause of honor or honoris causa (Latin). Persons are often confused when addressing someone with an honorary doctorate. Universities establish their own criteria for the award of honorary doctorates and have their own specific guidelines concerning the use of the title ‘Dr’. Some allow the recipient to use the title generally, while others specify that it be used only within the circles of that particular educational community. Others may require that whenever the title ‘Dr’ is written in reference to a recipient of an honorary doctorate the abbreviation for honoris causa (h.c.) be written next to it. An honorary doctorate awarded by an accredited university, while obviously not having the same standing as an earned degree, can be regarded as a prestigious award. Regrettably, many “Diploma Mills” also offer honorary doctorates and therefore create skepticism about the value of such awards. cont’d from pg 12 form of the US Treasury ostensibly to prevent a US company from being taxed unjustly by the EU since it went into Ireland on the basis of a declared tax structure and administration. The US government has warned the EU that any attempt to collect alleged unpaid back taxes not only from Apple but also from two other US companies, Starbucks and Amazon, would be overstepping its powers, making it ‘a supranational tax authority’. This last statement is especially interesting given that the US has long applied extra-territorial laws in pursuit of its own interests, and its 2010 Federal law, the Foreign Account Tax Compliance Act (FATCA), enforces the requirement for United States persons including those living outside the US to file yearly reports on their non-U.S. financial accounts to the Financial Crimes Enforcement Network. Governments are required to sign an Inter-Governmental Agreement with the US to make FATCA operational or the financial institutions in their countries will suffer significant financial repercussions. The US Treasury intervention, although it is couched in language that calls for the preservation of certainty and clarity in tax administration from the EU, really goes beyond that. It is really concerned with collecting taxes from companies, such as Apple and others, that are required to pay their taxes in the US. While under double-taxation agreements, companies can offset US taxes against taxes paid in an EU country, if the EU proceeds to demand US$19 billion in alleged unpaid taxes from Apple, the US share of taxes from the company would be considerably diminished - if there is any tax left to collect at all. So, in the end, this confrontation between two allies in the tax campaigns against everyone else boils down to money. Essentially, to whether the US or the EU gets the bulk of the taxes. And, then there is another consideration: a US Treasury White Paper says that the EU’s demand for retroactive tax payments “sets an undesirable precedent that could lead other tax authorities, particularly those in developing countries, to seek large and punitive retroactive recoveries from both US and EU companies”. And, of course, that must never be allowed to happen. In any event, a battle seems to be set up between the EU and US on harmful tax competition. Dwarves have been forced to capitulate in similar fights; it will be interesting to see how the giants fare against each other. Editor’s Note: The opinions expressed in this Op-ed are those of the author and do not necessarily reflect the views of Caribbean Times.
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Caribbean Times 89th Issue - Friday 9th September 2016

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