...avoiding the tax man
Technology giant Apple have once again found themselves under the public spotlight for their tax returns, as their accounts have revealed that they paid just £12.9 million in UK corporation tax last year.
Reviewing the figures, Luke Corcoran, specialist in commercial law, outlines how multinationals continue to contribute less to the taxman than some critics deem acceptable.
Exploiting legal technicalities
Apple UK, the company’s UK operations arm, posted profits of £78 million – resulting in a corporation tax payment of £6.5 million, while Apple Retail UK Limited – which runs Apple’s network of stores around the country – posted revenues of £1 billion, resulting in a profit of £6.4 million.
The company claims that it paid all of the tax required by law, as a spokesperson has stated that the Californian company is the “largest taxpayer in the world and we pay all that we owe according to the law”.
Critics are likely to reject this reasoning, although the practice employed by Apple is not technically illegal, as they route many of their sales through their Irish headquarters – where a corporate tax rate of 12.5% is more favourable than the UK’s 20%.
Tech firms under pressure
Apple is not the first, and certainly won’t be the last, tech company to publish what some might call ‘questionable’ tax figures, as the likes of Facebook, Amazon and Google have all been implicated in UK tax controversy in the past.
The gap between sales revenue and profit highlights where big firms could be accused of playing the system, as Facebook reported revenues of £105 million in 2014, but paid just £4,327 in corporation tax. Similarly, Google paid £20.4 million in taxes in 2013, despite sales figures of £3.8 billion that same year.
In response to public outcry, and thanks in part to MPs condemning the actions of big technology firms, both Facebook and Google have committed to contributing more into the public coffers – it remains to be seen whether this will mean they will declare all profits made in the UK to the Exchequer and pay the full 20% they owe.
EU commission investigation
Despite closely following the law of corporation tax, Apple may soon be on the end of an unfavourable ruling from the European Commission.
The results of a long-running probe into Apple’s tax arrangement with Ireland is set to be unveiled by the European Union, as there are suspicions that an Irish tax deal could give the company an unfair financial advantage.
Analysts at JP Morgan have estimated that, in the event of an unfavourable ruling, Apple could be ordered to pay over £14 million to the Irish government – however, this is deemed as a worst case scenario and officials in the Irish government have claimed they will challenge any negative decision with the EU Court of Justice.
“While technically correct, Apple’s claim their tax returns are just and fair is likely to leave a bitter taste in the mouths of their consumers. Moving figures between bases to land a lower tax bill is not a new phenomenon and with the release of the Panama Papers earlier this year I think the public have stopped feeling surprised at stories of this nature.
“While loopholes in legislation remain we are going to continue to hear about these controversial tax returns from big companies. The issue with tackling this practice stems from the fluidity of global markets – big corporations have bases set up around the world and can easily channel money through whichever country offers the most competitive tax rate.
“A coherent response to tax avoidance would require global co-operation and while these companies create so many jobs and provide such a boost to economies it is unlikely that every government will agree that this is an issue that requires immediate action.”
Written by Luke Corcoran
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