- - Sunday, September 4, 2016

ANALYSIS/OPINION:

Despite the protests of both country and company, the European Commission has declared Apple’s Irish tax rates constitute “illegal state aid,” and are telling the company they must pay the Irish government 13 billion euros (about $14.5 billion) plus interest. EU bureaucrats do not allege that Apple dodged taxes, but rather they did not pay enough, a decision that upends the established international tax system by opening the door to retroactive taxation based on subjective accusations of “fairness.”

In addition to undermining the tax sovereignty of Ireland, this unabashed EU cash grab will hit Americans, depriving taxpayers and businesses of money that would otherwise be reinvested in our economy. This ruling even threatens the chances for tax reform under the next president.

There is rare bipartisan agreement from leaders in Congress like Finance Committee Chairman Orrin Hatch, Utah Republican, and Ranking Member Ron Wyden and Treasury Secretary Jacob Lew that the efforts are discriminatory and will set a precedent the EU can use to claw ever greater amounts of revenue that rightfully belongs to U.S. taxpayers.

With few exceptions, the majority of the targets of these investigations are U.S. companies like Starbucks, Amazon, and McDonalds. EU Competition Commissioner Margrethe Vestager has even stated that more investigations will be launched in the coming year, so American businesses and taxpayers will remain vulnerable to tax hungry European bureaucrats.

Under the U.S. tax code, businesses headquartered in the United States must pay taxes on income they have earned overseas, even after it has been taxed in the country it was earned. Today we are just one of six countries within the developed world that utilizes a form of worldwide taxation. The other 28 developed countries in the Organisation for Economic Development utilize a territorial system, which means the country taxes income earned in their country but welcome the return of money earned abroad tax-free. This makes sense because this income is already taxed in the country where it was earned.

This outdated system is one reason that U.S. companies cannot compete, and is a key driver behind the flight of capital, jobs, and businesses from the U.S. to foreign competitors in the form of corporate inversions and foreign acquisitions.

But it has also left our businesses exposed to the European investigations, which allege low tax rates by member states constitute illegal state aid. In reality, these investigations are more about raiding an estimated $2.1 trillion in income that has been stranded overseas by the convoluted U.S. system of worldwide taxation.

The billions that are currently stranded overseas are a key component of any pro-growth tax reform. Back in 2005, Congress allowed businesses to repatriate double taxed income that had been deferred at a rate of 5.25 percent, resulting in $320 billion returning to the country that went to federal coffers, or was reinvested in the economy or toward higher wages.

Proposals, like the “Better Way” plan released by House Speaker Paul Ryan, Wisconsin Republican, and Ways and Means Chairman Kevin Brady, Texas Republican, smartly use the trillions stranded overseas as a way to ensure tax reform is revenue neutral, while also serving as booster shot to the U.S. economy.

Increasing the stagnant two percent growth of recent years to an average of just three percent could result in more than $2.8 trillion higher revenues, all without raising taxes according to the Congressional Budget Office. But this is all threatened by the European state aid investigations.

This latest ruling is clearly less about ensuring the international tax system works and more about raiding money that rightfully belongs to the American people. With this ruling, European officials have shown they have no second thoughts about upending the international tax system. The more they do this, the less there will be available to finance pro-growth tax reform and for businesses to reinvest in the U.S economy through repatriation.

Alexander Hendrie is federal affairs manager at Americans for Tax Reform.

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