The European Commission’s decision to serve Apple with a 13 billion euro tax bill represents a step forward in compelling multinational companies to pay the taxes that they owe in the countries in which they do business. The Commission has determined that tax deals between Apple and the Republic of Ireland as far back as 1991 violated the tax laws of the European Union, of which Ireland is a member state. Both Ireland, which stands out within the EU for its “multinational friendly” tax regime, and Apple, which makes a business of avoiding taxes at home and abroad, claim that their tax agreements were legal, and hence that the EC’s attempt to claw back taxes is without merit. Apple will appeal the EC’s decision, and the courts will decide.

The U.S. government should be applauding the EC’s attempt to bring a measure of rationality to international corporate tax law. It was in May 2013 that the U.S. Senate Permanent Subcommittee on Investigations called Apple CEO Tim Cook on the carpet to answer for the company’s use of its global operations to game the U.S. tax system. Cook gave a bullet-point explanation to the Subcommittee of “how we view our responsibility with respect to taxes”. It read:

  • Apple has real operations in real places, with Apple employees selling real products to real customers.
  • We pay all the taxes we owe – every single dollar.
  • We not only comply with the laws, but we comply with the spirit of the laws.
  • We don’t depend on tax gimmicks.
  • We don’t move intellectual property offshore and use it to sell products back into the U.S. to avoid U.S. taxes.
  • We don’t stash money on some Caribbean island.
  • We don’t borrow money from our foreign subsidiaries to fund our U.S. business in order to skirt the repatriation tax.

Let’s assume, just for the sake of argument, that, in seeking to minimize its tax bill, Apple has been the law-abiding corporate citizen that Mr. Cook claimed. Then the onus is on the U.S. government to reform the tax laws so that corporations pay their fair share of taxes in the United States. As a prime example, Apple is a major beneficiary of a tax loophole that, since 1960, has enabled U.S. companies to avoid paying taxes on earnings made and held abroad. At the end of June 2016, Apple had about 93% of its $231.5 billion in cash, near-cash, and marketable securities stowed offshore, thereby protecting the profits that had generated that from U.S. taxation.