Corporate tax deals: A bit too cosy?

IN 2002 Europe’s then competition commissioner, Mario Monti, noted that tax breaks differ from “classical” state aid in that governments forgo revenue rather than paying out money. This makes tax-based aid an “appealing mechanism” for them, as it “in some senses is ‘off-balance-sheet’…hidden from view in the depths of complex fiscal-law frameworks.”This year the European Commission has been exploring those dark recesses to establish whether multinationals’ arrangements with tax-friendly Ireland, Luxembourg and the Netherlands amount to illegal subsidies. For the three companies targeted so far (Apple, Fiat and Starbucks), and for the many others that routinely engage in complex tax-planning, the probes have taken the crackdown on cheeky tax avoidance into uncomfortable new territory—where the threat is not only to corporate reputations but to bottom lines too.The investigation into Apple, details of which were released this week, focuses on deals struck with Ireland in 1991 and 2007. Citing minutes of meetings between Apple’s tax advisers and officials, the commission suggests they reached a quid pro quo in which the company was allowed to shelter profits from tax in return for maintaining jobs. The suspected mechanism was “transfer pricing” agreements that deviated from international accounting guidelines, which require transactions between group subsidiaries to be priced…

Link to article: www.economist.com/news/business/21621810-multinationals-deals-tax-friendly-countries-are-coming-under-fire-bit-too-cosy?fsrc=rss|bus

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