U.S. Multinational Companies to Face Tougher Tax Laws
Monday, October 10, 2016

U.S. Multinational Companies to Face Tougher Tax Laws

Uncle Sam may soon be knocking on Apple’s door.  The computer giant, along with other American multi-national corporations could be paying higher domestic taxes. The United States Treasury announced it will tighten restrictions for corporations that used foreign tax credits to reduce the amount of money they owe the U.S. Government. The ruling comes as a response to the European Union’s demand for Apple Inc. to pay 13 billion Euros ($14.6 billion) in back taxes to Ireland. It is an effort by governments to bolster their corporate tax bases.

The European Union announced its decision on August 30 after it was discovered Apple received improper state aid from Ireland as part of a deal to lower the company’s taxes. The decision by the EU is already having a big impact on American corporate tax laws.  Many believe the EU’s decision undermines the U.S. tax base, prompting the United Treasury to force multinational companies to pay higher taxes.

For years, American companies have been able to reduce the amount of taxes they owe the government by claiming the tax credits paid overseas. Under current tax laws, American multinational corporations can avoid paying taxes on their profits until they are repatriated into the country.  These new changes to American corporate tax laws are designed to eliminate a practice known as “splitting”, where multinational companies would bring foreign tax credits back into the United States without repatriating the income where it originated.

But Apple is not the only American multinational company being targeted by the European Union. Starbucks Corp. has been ordered to pay the Netherlands 30 million Euros ($33 million). McDonald’s and Amazon.com are also under investigation. The European Union is accusing McDonald’s of receiving illegal tax breaks in Luxembourg. The EU cited that McDonald’s failed to pay any corporate taxes in Luxembourg or the United States despite making $280 million in profits back in 2013.  McDonald’s isn’t the only American multi-national company under scrutiny for failing to pay corporate taxes in Luxembourg, the EU is investigating questionable tax practices by Amazon.com dating all the way back to 2003.

The Irish government and Apple have both announced they will appeal the European Union’s decision. The company’s CEO Tim Cook says the EU’s demands are “unprecedented” and would have significant future ramifications. Cook alleges the EU is trying to bully Ireland into rewriting its tax laws. The EU also claims Apple avoided paying tax across Europe by only reporting their sales in Ireland instead of where all their products were sold.

It is important to understand large and small American companies have been using these practices for years. South Florida cruise ship companies Carnival and Royal Caribbean have been able to avoid paying taxes in the United States by registering their cruise ships to foreign countries. These practices are hardly illegally. It is just part of the clever loopholes many corporations use to minimize their tax liability. Whether you are a private individual or a large corporation, it always pays to properly know tax law.

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