News / Economy

EU, G20 Move to Crack Down on Corporate Tax Avoidance

The new iPhone 5C is seen on screen at Apple Inc's media event in Cupertino, California Sept 10, 2013.
The new iPhone 5C is seen on screen at Apple Inc's media event in Cupertino, California Sept 10, 2013.
TEXT SIZE - +
Ana Hontz-Ward
— Every year, the eurozone loses an estimated one trillion euros in revenue from multinational companies that don’t pay taxes on their European profits. These companies, including tech giants like Apple, Amazon and Google, as well as coffee company Starbucks, take advantage of loopholes in the complicated international tax code system and move their profits around the world to dodge tax payments. But they are facing increasing scrutiny from cash-strapped European governments and criticism from consumers over their unfair practices and lost revenues.

Paying the bills every month is a challenge for businessman Jalil Kidder, the owner of a security company and small restaurant in a suburb of Frankfurt. Among his highest costs - the long list of German taxes.  In addition to other taxes, Jalil pays the German government on average 30 percent of his profits in income tax. 

In Frankfurt's financial district, a short drive from his restaurant, Starbucks's flagship store in the city has paid no profit tax since it opened its doors 10 years ago. This contradiction is at the heart of a recent debate in Germany and the European Union about tax avoidance by wealthy multinational corporations.

"There is a saying here that goes like this, the big ones are eating the small, he says. That’s exactly what we are experiencing in this situation in Germany: the big companies are getting richer and richer in this country while small businesses like mine are struggling, they’re going kaput," said Kidder.

Starbucks and Apple declined interview requests for this story.  But a recent investigation by the U.S. Senate shows that between 2009 and 2012, Apple paid no tax on its reported $74 billion in overseas income.  Apple achieved this by legally opening a subsidiary, or affiliate, in Ireland and exploiting a loophole in the Irish tax code. 

Companies like Facebook and Amazon employ similar tactics, using a complex network of affiliates in countries like Luxembourg, the Netherlands or Switzerland to dodge billions of euros in taxes.  Taxes that would otherwise go to Germany or France go instead to Luxembourg or Ireland, but at a discounted rate.

Hanno Kube, a professor of tax law at the University of Mainz, says these seemingly legal tactics are unethical and unfair to small local businesses.

"They have [a] competitive advantage which is not acceptable; [just[ because they use international structures is not a justification for not making them pay taxes. Also, they use infrastructure provided by the [German] states, they use the streets, our banking system, our laws, so it’s only fair that they also pay taxes for the profits they make," Kube said.

And European governments are hoping this happens sooner rather than later. The EU recently asked the governments of Ireland, the Netherlands and Luxembourg to disclose their corporate tax arrangements with U.S. tech giants, while the Organization for Economic Co-operation and Development, or OECD, presented the G20 in St. Petersburg earlier this month with a 15-step plan to tackle international tax avoidance. 

The OECD tax reform plan would require multinationals with overseas operations to pay taxes on any profits coming from sales in that particular country - basically, to play by the same rules that apply to local businesses. Consumers in Germany agree the change is long overdue.

"I think it’s kind of unfair because all the other companies in Germany have to pay taxes," said Viola Marienfeld, a college student in Frankfurt. "But it won’t change my opinion about Starbucks. I still like them."

The issue has also been getting attention in the United States, with Apple executives going in front of a U.S. Senate subcommittee in May to explain the company's tax practices in the U.S. and abroad. 

Hanno Kube of the University of Mainz says it’s no surprise many of the biggest tax avoiders in Europe are U.S. tech companies. The United States uses a tax law that subsidizes multinational companies and eventually leads to lost revenues for European countries. Resolving this issue, he says, will be hard, but the U.S. is part of the solution.

"It needs the consensus of many nations because corporations will always find a small country which will attract them, a country which doesn’t cooperate," he said. "That’s a big problem in international tax law, but, in general, I do see a trend towards stricter international tax law and also towards more exchange of information between states, including Luxembourg and Switzerland, an exchange of information which we haven’t seen years ago. So the political pressure is increasing."

If adopted, the 15-point plan released earlier this month by the OECD in St. Petersburg will overhaul the international tax system and eventually bring in billions of euros of much needed revenue to a region still grappling with debt and austerity measures. Most importantly, the plan will bring some relief to small businesses and ordinary taxpayers.

You May Like

Multimedia Relatives of South Korean Ferry Victims Fire at Authorities

46 people are confirmed dead, but some 250 remain trapped inside sunken ferry More

War Legacy Haunts Vietnam, US Relations

$84 million project aims to clean up soil contaminated by Agent Orange More

Wikipedia Proves Useful for Tracking Flu

Technique gave better results than Center for Disease Control (CDC) and Google’s Flu Trends More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Ukraine, Russia, United in Faith, Divided in Politicsi
X
Michael Eckels
April 19, 2014
There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Ukraine, Russia, United in Faith, Divided in Politics

There is a strong historical religious connection between Russia and Ukraine. But what role is religion playing in the current conflict? In the run-up to Easter, Michael Eckels in Moscow reports for VOA.
Video

Video Face of American Farmer is Changing

The average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population. It’s a troubling trend signaling big changes ahead for American agriculture as aging farmers retire. Reporter Mike Osborne says a new report from the U.S. Census Bureau is suggesting what some of those changes might look like... and why they might not be so troubling.
Video

Video Donetsk Governor: Ukraine Military Assault 'Delicate But Necessary'

Around a dozen state buildings in eastern Ukraine remain in the hands of pro-Russian protesters who are demanding a referendum on self-rule. The governor of the whole Donetsk region is among those forced out by the protesters. He spoke to VOA's Henry Ridgwell from his temporary new office in Donetsk city.
Video

Video Drones May Soon Send Data From High Seas

Drones are usually associated with unmanned flying vehicles, but autonomous watercraft are also becoming useful tools for jobs ranging from scientific exploration to law enforcement to searching for a missing airliner in the Indian Ocean. VOA’s George Putic reports on sea-faring drones.
Video

Video New Earth-Size Planet Found

Not too big, not too small. Not too hot, not too cold. A newly discovered planet looks just right for life as we know it, according to an international group of astronomers. VOA’s Steve Baragona has more.
Video

Video Copts in Diaspora Worry About Future in Egypt

Around 10 percent of Egypt’s population belong to the Coptic faith, making them the largest Christian minority in the Middle East. But they have become targets of violence since the revolution three years ago. With elections scheduled for May and the struggle between the Egyptian military and Islamists continuing, many Copts abroad are deeply worried about the future of their ancient church. VOA religion correspondent Jerome Socolovsky visited a Coptic church outside Washington DC.
Video

Video Critics Say Venezuelan Protests Test Limits of Military's Support

During the two months of deadly anti-government protests that have rocked the oil-rich nation of Venezuela, President Nicolas Maduro has accused the opposition of trying to initiate a coup. Though a small number of military officers have been arrested for allegedly plotting against the government, VOA’s Brian Padden reports the leadership of the armed forces continues to support the president, at least for now.
Video

Video More Millenials Unplug to Embrace Board Games

A big new trend in the U.S. toy industry has more consumers switching off their high-tech gadgets to play with classic toys, like board games. This is especially true among the so-called millenial generation - those born in the 1980's and 90's. Elizabeth Lee has more from an unusual café in Los Angeles, where the new trend is popular and business is booming.
Video

Video Google Buys Drone Company

In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
AppleAndroid

World Currencies

EUR
USD
0.7217
JPY
USD
102.17
GBP
USD
0.5949
CAD
USD
1.1009
INR
USD
60.326

Rates may not be current.