The General Economics Thread

The European Commission will rule against Ireland's tax dealings with Apple on Tuesday, two source familiar with the decision told Reuters, one of whom said Dublin would be told to recoup over 1 billion euros in back taxes.

The Commission declined to comment on Monday.

The European Commission accused Ireland in 2014 of dodging international tax rules by letting Apple shelter profits worth tens of billions of dollars from tax collectors in return for maintaining jobs. Apple and Ireland rejected the accusation; both have said they will appeal any adverse ruling.

The source said the Commission will recommend a figure in back taxes that it expects to be collected, but it will be up to Irish authorities to calculate exactly what is owed.

A bill in excess of 1 billion euros ($1.12 billion) would be far more than the 30 million euros each the European Commission previously ordered Dutch authorities to recover from U.S. coffee chain Starbucks and Luxembourg from Fiat Chrysler for their tax deals.

Both companies and countries have appealed those decisions.

When it opened the Apple investigation in 2014, the Commission told the Irish government that tax rulings it agreed in 1991 and 2007 with the iPhone maker amounted to state aid and might have broken EU laws.

Apple employs 5,500 workers, or about a quarter of its European-based staff in the Irish city of Cork, where it is the largest private sector employer. It has said it paid Ireland's 12.5 percent rate on all the income that it generates in the country.

Ireland's low corporate tax rate has been a cornerstone of economic policy for 20 years, drawing investors from major multinational companies whose staff account for almost one in 10 workers in Ireland.

Some opposition Irish lawmakers have urged Dublin to collect whatever tax the Commission orders it to. But the main opposition party Fianna Fail, whose support the minority administration relies on to pass laws, said it would support an appeal based on the reassurances it had been given by the government to date.

The U.S. Treasury Department published a white paper last week that said the EU executive's tax investigations departed from international taxation norms and would have an outsized impact on U.S. companies. The Commission said it treated all companies equally.

EU antitrust regulators ordered Apple on Tuesday to pay up to 13 billion euros (11 billion pounds) in taxes plus interest to the Irish government after ruling that a special scheme to route profits through Ireland was illegal state aid.

The massive sum, 40 times bigger than the previous known demand by the European Commission to a company in such a case, could be reduced, the EU executive said in a statement, if other countries sought more tax themselves from the U.S. tech giant.

Apple, which with Ireland said it will appeal the decision, paid tax rates on European profits on sales of its iPhone and other devices and services of between just 0.005 percent in 2014 and 1 percent in 2003, the Commission said.

"Ireland granted illegal tax benefits to Apple, which enabled it to pay substantially less tax than other businesses over many years," said Competition Commission Margrethe Vestager, whose crackdown on mainly U.S. multinationals has angered Washington which accuses Brussels of protectionism.

Online retailer Amazon.com Inc and hamburger group McDonald's Corp face probes over taxes in Luxembourg, while coffee chain Starbucks Corp has been ordered to pay up to 30 million euros ($33 million) to the Dutch state.

A bill of 300 million euros this year for Swedish engineer Atlas Copco AB to pay Belgian tax is the current known record. Other companies ordered to pay back taxes in Belgium, many of them European, have not disclosed figures.

For Apple, whose earnings of $18 billion last year were the biggest ever reported by a corporation, finding several billion dollars should not be an insurmountable problem. The 13 billion euros represents about 6 percent of the firm's cash pile.

As of June, Apple reported it had cash, cash equivalents and marketable securities of $231.5 billion, of which 92.8 percent, or $214.9 billion, were held in foreign subsidiaries. It paid $2.67 billion in taxes during its latest quarter at an effective tax rate of 25.5 percent, leaving it with net income of $7.8 billion according to company filings.

[[quoteblock]] "I disagree profoundly with the Commission," Irish Finance Minister Michael Noonan said in a statement. "The decision leaves me with no choice but to seek cabinet approval to appeal.

"This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign member state competence of taxation."

Ireland also said the disputed tax system used in the Apple case no longer applied and that the decision had no effect on Ireland's 12.5 percent corporate tax rate or on any other company with operations in the country.

Apple said in a statement it was confident of winning an appeal.

"The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process. The Commission’s case is not about how much Apple pays in taxes, it’s about which government collects the money. It will have a profound and harmful effect on investment and job creation in Europe."

When it opened the Apple investigation in 2014, the Commission told the Irish government that tax rulings it agreed in 1991 and 2007 with the company amounted to state aid and might have broken EU laws.

The Commission said the rulings were "reverse engineered" to ensure Apple had a minimal Irish bill and that minutes of meetings between Apple representatives and Irish tax officials showed the company's tax treatment had been "motivated by employment considerations."

Apple employs 5,500, or about a quarter of its Europe-based staff, in the Irish city of Cork, where it is the largest private sector employer. It has said it paid Ireland's 12.5 percent rate on all the income that it generates in the country.

Ireland's low corporate tax rate has been a cornerstone of economic policy for 20 years, drawing investors from multinational companies whose staff account for almost one in 10 workers in Ireland.

Some opposition Irish lawmakers have urged Dublin to collect whatever tax the Commission orders it to. But the main opposition party Fianna Fail, whose support the minority administration relies on to pass laws, said it would support an appeal based on reassurances it had been given by the government.

The U.S. Treasury Department published a white paper last week that said the EU executive's tax investigations departed from international taxation norms and would have an outsized impact on U.S. companies. The Commission said it treated all companies equally.

The most far reaching speech at the Federal Reserve’s Jackson Hole meeting last week was…

…the contribution on the fiscal theory of the price level (FTPL) by Professor Christopher Sims of Princeton University…. The subject is now moving centre stage…. It has important implications for the conduct of macro-economic policy, especially in Japan and the eurozone member states…. Government debt is an asset to the private sector. Prof Sims says that a reduction in future government deficits will make this debt a more attractive investment and this will induce the private sector to hold more of the debt, thus reducing demand for goods and services. This exerts a deflationary effect on the economy….

We are all familiar with… inflation if an irresponsible government (eg Brazil in the 1980s) persists in running excessive deficits…. Prof Sims reminds us that this can work in reverse, with all the signs changed. It is clear that this is directly relevant to the effectiveness of QE by the central bank…. Viewed in this light, the ineffectiveness of QE in offsetting a chronic shortage of private demand is not that surprising…. Prof Sims suggests that Japan can escape from its deflationary trap only by explicitly joining up fiscal and monetary policy, and making both subordinate to the inflation target…

Confidence in an enduring marriage between liberal democracy and global capitalism seems unwarranted….

So what might take its place? One possibility[:]… a global plutocracy and so in effect the end of national democracies. As in the Roman empire, the forms of republics might endure but the reality would be gone.

An opposite alternative would be the rise of illiberal democracies or outright plebiscitary dictatorships… [like] Russia and Turkey. Controlled national capitalism would then replace global capitalism. Something rather like that happened in the 1930s. It is not hard to identify western politicians who would love to go in exactly this direction.

Meanwhile, those of us who wish to preserve both liberal democracy and global capitalism must confront serious questions. One is whether it makes sense to promote further international agreements that tightly constrain national regulatory discretion in the interests of existing corporations…. Above all… economic policy must be orientated towards promoting the interests of the many not the few; in the first place would be the citizenry, to whom the politicians are accountable. If we fail to do this, the basis of our political order seems likely to founder. That would be good for no one. The marriage of liberal democracy with capitalism needs some nurturing. It must not be taken for granted.

Handle, do workers in Sweden own the means of production? No? Then, it's not socialism.