It has been a bruising few days for some of Europe’s smaller nations whose controversial tax regimes and financial secrecy have come under fire from governments seeking to reclaim billions in lost taxes.
On Monday, the European Commission released a 21-page letter in which it alleges that Ireland and corporate giant Apple have been benefiting from a special tax deal for decades. Tax agreements, signed in 1990 and 2007 between the Irish government and US-headquartered Apple, constitute illegal “state aid”, according to the Commission.
Ireland was motivated by “employment considerations” in striking the deal with Apple, according to the Commission Vice President Joaquin Almunia. Apple employs 4,000 people in Ireland, where the company has operated since 1980.
In response, Apple and the Irish government have denied wrongdoing and insist they correctly apply relevant European and national laws.
According to U.S. Senator Carl Levin, outgoing chairman of the Senate Permanent Subcommittee on Investigations, which produced a 40-page memorandum on Apple’s tax affairs in May 2013, the EC’s investigation confirms that Ireland gave Apple a “special tax deal in Ireland that dramatically reduces Apple’s global tax bill”.
According to Senator Levin’s 2013 investigation, Apple Operations International – incorporated in Ireland – paid no corporate income tax to “any national government” between 2009 and 2012 despite earning net income of $30 billion.
“The facts are abundantly clear,” said Senator Levin in a statement. “Apple developed its crown jewels — lucrative intellectual property — in the United States, used a tax loophole to shift the profits generated by that valuable property offshore to avoid paying U.S. taxes, then boosted its profits through a sweetheart deal with the Irish government”.
The Commission’s findings on Ireland suggest that national governments are increasingly a target in tax avoidance crackdowns, according to Bloomberg. The EC is currently investigating tax deals made between the Dutch government and Starbucks Corp and between Luxembourg authorities and carmaker Fiat.
On Friday, Nicolas Mackel, the chief of Luxembourg’s public-private finance agency defended his country’s tax practices, calling on a room full of businessmen and women to “help convey” a positive image.
“Offshore…means nothing more than people living in one country having their money managed elsewhere”, said Mackel in comments reported by newspaper Luxemburger Wort.
Others disagree, with Senator Levin decrying offshore tax abuses as “undermining public confidence in our tax system… widening the deficit and increasing the tax burden for the rest of American families and businesses.”
Luxembourg is not a saint, said Mackel, but the Grand Duchy was “no worse sinners than everybody else”. In 2013, the Tax Justice Network’s Financial Secrecy Index, which ranks countries based on the secrecy of their laws, regulations and treaties, found Luxembourg was the second most secret tax haven in the world.
On Sunday, Andorra, the microstate nestled between Spain and France, came under fire in an article titled “Andorra, Secret Tax Haven” in the Spanish news magazine XL Semanal.
According to XL Semanal, Andorra’s banks continue to be a haven for tax abuse despite the country previously agreeing to transparency rules. Andorra attracted renewed attention following allegations that a Spanish politician hid 4.3 million euros from Spanish authorities in an Andorran bank account.
The country of 80,000 people is not nearly as secretive as Luxembourg and Switzerland, according to the Financial Secrecy Media Monitor. Yet banking accounts for 18% of the country’s GDP and half of the Cabinet are former bank managers, according to XL Semanal.
In a sign of ongoing headaches for Europe’s small nations and territories, as this blog went live, the European Commission had announced an extension to its offshore investigation into Gibraltar.
Find out first! Receive ICIJ's investigations by email