Back in the summer, I took a long look at Irish tax policy. In essence, Irish tax policy is basically set in consultation with large US corporates. The OECD is trying to introduce a new policy that allows governments like the UK to tax large multinationals like Apple on where they generate the revenue, rather than were they book the profits. In a recent budget, the Exchequer (UK treasury) estimated a GBP 2bn uplift from the OECD tax changes.
In response to this change, the Irish introduced a tax policy - Capital Allowance on Intangible Assets (CAIA). This removed the need for US corporates to send profits to tax havens, and pay tax in Ireland at a rate that they can set themselves. They merely need to transfer intellectual property to Ireland at cost, then get a subsidiary to buy it at “market value”, and then can depreciate this assets to generate a tax shield.
This policy was implemented after the details of the OECD tax plan were largely known, so I suspect have been shaped in a way that makes them very legally robust. My feeling is that tax take in Europe from large US corporates (Apple for example) will remain low. This creates huge problems for European corporates and governments. First of all, the Irish tax scheme only works for US corporates. That is a German company can not set up an Irish subsidiary, and then avoid paying tax on its US operations. Secondly, US politicians are not incentivised to change the system, as it technically increases the US tax take from US corporates. Thirdly, it gives US based companies a huge advantage when competing with non-US corporates. In essence, the UK tax base is continually eroded. This is leading to some strange macro outcomes. The UK tax take is at 50 year highs.
Despite this, the UK runs a 5% of GDP budget deficit.
What is really odd about this, is that the usual drivers of a fiscal deficit - falling asset prices or rising unemployment are not present. UK house prices are at all time highs.
And unemployment is low.
One possible thought I had was that the UK as it is now outside of the EU, could unilaterally “denounce” the tax treaty with Ireland. The treaty allows this with 6 months notice. The main purpose of this would be to try and bring Ireland to it senses, and stop reducing EU tax take while its funding a war in Ukraine. Other options would be to list Ireland as a tax haven (non-cooperative tax jurisdiction) and this would then subject to businesses operating out of Ireland with various onerous checks and regulations.
The problem with this, is that if Ireland, is shut down as a tax haven, another nation would probably be willing to step into the breach. This leaves the UK with implementing policies that reduce the incentive to shift assets overseas. This might be seen as extreme, but the tax structure of Apple has been copied wholesale by US corporates, and more and more businesses are being subsumed in to the tax free operations of these corporates. Advertising industry is dominated by Google and Meta (and tax free), retail is dominated by Amazon (and tax free), television is dominated by Netflix, Disney and Amazon and is tax free. Payments by Visa and Mastercard and is tax free. The logic of tax take, and the US of Ireland as a tax haven points to only one option - a tariff on all imports that make payments to offshore intellectual property.
What I am trying to say is that the UK could impose a tariff on any product that pays royalties to non-UK intellectual property. For example, Apple takes a 30% cut on all transactions through its iStore. This will be carried out through Irish based Apple subsidiary, and subject to Irish tax. As the intellectual property rights are not based in the UK it should become subject to a IP tariff, of say 10%. This would discourage base shifting, and would act to counter the unfair advantage that US based corporates have. As Apple has no IP based in the UK, my guess it would raise something like US 1bn of revenue for the UK, and similar amount from Microsoft and probably more from Google. As a policy, I admit it is not ideal, but experience leads me to believe that dealing with US corporates requires carrying a big stick.
Should the OECD tax reform fail, which I think is likely, I hope the UK has the courage to implement tax policy to level the playing field. Given the US has implemented across the board tariffs on China, this seems only fair.
HOW COULD THE UK MAKE APPLE PAY MORE TAX?