The days when big U.S. technology companies could easily slice tax bills in Europe are coming to an end.
For decades, businesses like Apple Inc. that generate significant revenue abroad flocked to Ireland, the Netherlands and Luxembourg, where they counted on amenable fiscal regimes to reduce their tax, even if they had minimal operations on the ground.
On Tuesday, European Competition Commissioner Margrethe Vestager sent the strongest signal yet that she won’t abide these strategies when she demanded Apple pay an estimated 13 billion euros ($14.5 billion) in back taxes.
Yep. But Apple’s not the only company being targeted:
Vestager’s move is part of a broader push to close loopholes that European regulators think give foreign companies an advantage. Google parent Alphabet Inc. has also been a beneficiary of Ireland’s tax regime, using the so-called “Double Irish” mechanism to save billions in tax on its international earnings. Ireland is phasing this out, although companies have until 2021 to adjust.
Amazon.com Inc. used a similar process to effectively send profit through Luxembourg. In Europe, the e-commerce giant told authorities that the intellectual property behind its web shopping platform was immensely valuable, justifying the billions in tax-free revenue it collected there since moving its technology assets to Luxembourg a decade ago. In the U.S. it played down the value of those same assets to explain why it paid so little in taxes for licensing them. That prompted investigations on both sides of the Atlantic and Amazon changed its policy in 2015, largely eliminating the practice.
And some companies have already seen this coming:
About six months ago, Netflix Inc. told an investor that the company will likely pay higher international tax rates than other large U.S. technology companies currently pay. Netflix, which recently began expanding aggressively abroad, said it views other U.S. tech companies’ international tax strategies as unsustainable, according to a person familiar with the situation.
Argue all you want about whether or not this is legal. What the EU is showing is that anti-competitive behavior trumps borderline tax avoidance, even it if uses what are generally considered legal loopholes.