US-EU May Lock Horns Over Apple

USA has the power of doubling tax rates of European companies that have an established presence in that country. It may be an act of retaliation to the European Commission’s ruling that Apple (NASDAQ: AAPL) will have to pay a lump sum ($14.5 billion) as back taxes to Ireland. But experts seem confident that Obama and his administration will not take such a drastic step. Even if Obama makes use of US tax laws to penalize the European companies for EU’s decision on Apple, the US courts are sure to prevent this. Doubling of tax rates would mean disrespecting certain treaties.

Reaction from all corners

The Republican and Democratic lawmakers have proposed that the US President levy double taxes on European companies in USA. Under Section 891 of the US tax code, the President of the United States has the right to impose double tax rates on corporations and citizens of any country who have discriminated against any US company. Although this law was passed in 1934, no President has ever evoked it till date.

The US Treasury on the other hand has refused to comment on what Obama and his team plans to do with the matter. Jack Lew, the Treasury Secretary, feels the European Commission is focusing particularly at US companies but did not talk about the US government’s involvement with the matter. A spokesperson at the Treasury confirmed that the government will help EU prevent avoidance of taxes by multinational companies.

Legal scholars are certain that the Obama administration will not make the mistake of punishing European companies in America in retaliation to the European Commission’s decision. Europe has been America’s biggest trading partner and one of its closest allies. If America even dares to take such a foolish step, it should know that this decision will harm the entire global trade order.

Reality

Professor Edward Kleinbard from the University of Southern California in Los Angeles rues that there are indeed certain people who would want to jeopardize the global trade order. The Democratic Senator Ron Wyden wants the Obama administration to contemplate evoking Section 891 to understand how U.S. companies reduce their tax bills on European soil. Orrin Hatch, the Republican Senator, has supported this idea. But this is an obscure provision under the US tax code. It is not clear if the provision will get superseded by the treaties with Europe if it is challenged in court. 

Leave a Comment