Business News Breakdown: Hot topics in business and accounting. Let me do the research, so you don’t have to.
Over the past few months, member nations of the European Union (E.U.) have gotten themselves into increasingly hot water over their role as tax havens for U.S. tech giants. Margrethe Vestager, European Commissioner for Competition, leads the crusade against tax avoidance through agreements which the E.U. identifies as “sweetheart deals,” (abnormally favorable contracts between U.S. companies and European countries). The campaign is nothing new—Vestager has made tax avoidance a priority since she became Commissioner for Competition in 2014, but recent events have brought the conversation back to the forefront of public thought.
The main tax issue lies in how the E.U.’s tax laws define the operational jurisdiction of foreign companies. In the case of Amazon, the company’s European headquarters is located in low-tax Luxembourg. The current laws mean that the company is taxed in Luxembourg, despite larger operations in other E.U. member countries.
An unlikely critic of the campaign is the United States Treasury Department. The U.S. has plenty of complaints about international tax havens, but the government says that Europe is unjustly targeting American companies and endangering “the important spirit of economic partnership between the U.S. and the E.U.”
Mid-September saw E.U. finance ministers beginning to give support to the development of new tax rules concerning tech companies like Google, Facebook, Amazon, and Apple. As far back as August 2016, the E.U. ordered Ireland to collect $14.5 billion in back taxes from Apple, Inc., and just yesterday, the E.U. ruled that Amazon owes $300 million to Luxembourg, home to the company’s European headquarters.
The European Union began its work to thwart these tax planning strategies following the financial crisis, and these back tax rulings are likely just the tip of the iceberg. Multiple iterations of new rules have already been discussed, but according to a September 2017 report, “the main challenge is to reform the international tax framework, which was first designed at the start of the 20th century and is no longer fit for purpose.”
In our increasingly global economy, international tax is a complex, hot-button issue. Any changes made have big implications on how U.S. companies will do business, and, subsequently, our future careers.
Want to learn more? Check out the following articles (referenced in the post above):