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  1. Business

The no-win game of Apple's taxes

There was never much doubt that large multinational companies enjoy a great deal of leverage over governments at all levels — local, state, even national — but on Tuesday, European regulators actually quantified it.

European Commission officials allege that Ireland's government secured 5,500 jobs from Apple by striking a tax agreement that allowed the company to underpay its taxes by $14.5 billion between 2003 and 2014. The arrangement made the company's effective Irish tax rate no higher than 1 percent over that time.

The ruling adds to a strained relationship between the United States and the European Union over who has the right to regulate tax payments by some of the world's largest companies.

The European Commission, under the leadership of Margrethe Vestager, the competition chief, has aggressively sought to stamp out sweetheart tax deals that countries strike with multinational companies. Along with Apple, the campaign has also ensnared Starbucks in the Netherlands, Amazon in Luxembourg and Anheuser-Busch InBev in Belgium.

If it stands, the European ruling would force Apple to pay that $14.5 billion to Ireland. But Irish leaders don't want the money; they say they will appeal the ruling, as will the company.

You can read that desire to appeal a lot of ways, but here's the easiest one: A tax-friendly relationship with Apple, and its 5,500 jobs, is worth more to Ireland than $14.5 billion. That's the minimum value of Apple's leverage over the country for the period 2003-2014. As a straight calculation, it works out to $220,000 per job, per year.

That seems like a heavy subsidy for any government to pay a corporation, let alone the most profitable corporation in the history of the world, which Apple happens to be.

Apple says it has invested nearly 140 million euros in Cork, Ireland, since 2012, in order to expand its campus there — where it is the largest private employer. It says it will eventually add 1,000 more workers, and it claims its spending has supported 2,500 jobs in "services such as facilities, catering, security, recruitment, printing, fulfillment and maintenance."

This is a familiar story to anyone who has covered economic development policy in almost any state in America in the past quarter-century. Companies, particularly large companies, use their leverage over lawmakers to win tax concessions, a practice exhaustively documented by the group Good Jobs First.

It doesn't always work — the fact that every tech company in Silicon Valley hasn't been lured to a lower-tax state shows how companies factor things other than tax rates into their location decisions — but it often does. It's true internationally, as well. Apple CEO Tim Cook recently told the Washington Post that the company won't bring its international cash stockpile back to the United States to invest here until there's a "fair rate" for corporate taxation in America.

There are two big issues here, for policymakers at every level of government. One is about companies that don't have much leverage: small businesses, or businesses that only exist in an entrepreneur's mind. Those companies are the losers when big companies are taxed lower than everyone else. That's a key argument European officials made in targeting Apple.

The other issue, though, is transparent incentives. Existing companies rationally want to minimize their tax bills, and lawmakers rationally want to maximize economic growth in their areas. Those forces push toward better and better tax deals for the biggest companies. They are the reason Ireland's relationship with Apple is worth $220,000 per job, if the alternative is no jobs and no investment. As long as companies have that much leverage, the math will keep working in their favor.

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