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.
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

Syrian Rebels Poised for Anti-Russia Collaboration

Forty-one insurgent groups issue joint statement vowing retaliation for Russian air offensives More

Political Maneuver Revives Export-Import Bank's Chances

Parliamentary tactic gets bill out of committee, but it faces opposition in the Senate More

Beijing Warns US on S. China Sea Patrols

Warning follows news reports Thursday that US military is planning to sail warships close to artificial islands Beijing has been aggressively building More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
House Republicans in Chaos as Speaker Favorite Withdrawsi
Jim Malone
October 09, 2015 12:32 AM
The Republican widely expected to become the next speaker of the House of Representatives shocked his colleagues Thursday by announcing he was withdrawing his candidacy. The decision by Majority Leader Kevin McCarthy means the race to succeed retiring Speaker John Boehner is now wide open. VOA National Correspondent Jim Malone reports.

Video House Republicans in Chaos as Speaker Favorite Withdraws

The Republican widely expected to become the next speaker of the House of Representatives shocked his colleagues Thursday by announcing he was withdrawing his candidacy. The decision by Majority Leader Kevin McCarthy means the race to succeed retiring Speaker John Boehner is now wide open. VOA National Correspondent Jim Malone reports.

Video German, US Officials Investigate Volkswagen

German officials have taken steps to restore some of the reputation their car industry has lost after a recent Volkswagen diesel emissions scandal. Authorities have searched Volkswagen headquarters and other locations in an effort to identify the culprits in the creation of software that helps cheat on emission tests. Meanwhile, a group of lawmakers in Washington held a hearing to get to the bottom of the cheating strategy that was first discovered in the United States. Zlatica Hoke reports.

Video Why Are Gun Laws So Hard for Congress to Tackle?

Since taking office, President Barack Obama has spoken out or issued statements about 15 mass shootings. The most recent shooting, in which 10 people were killed at a community college, sparked outrage over the nation's gun laws. But changing those laws isn't as easy as many think. VOA's Carolyn Presutti reports.

Video Hungary Criticized for Handling of Refugees

Amnesty International has accused Hungary of breaking multiple international and European human rights laws in its handling of the refugee crisis. As Henry Ridgwell reports, thousands of migrants and refugees continue to travel through the Balkans to Hungary every day.

Video Iraqi-Kurdish Teachers Vow to Continue Protest

Sixteen people were injured when police used tear gas and rubber bullets to disperse teachers and other public employees who took to the streets in Iraq’s Kurdish north, demanding their salaries from the Kurdish Regional Government (KRG). VOA’s Dilshad Anwar, in Sulaimaniya, caught up with protesting teachers who say they have not been paid for three months. Parke Brewer narrates his report.

Video Syrian Village Community Faces Double Displacement in Lebanon

Driven by war from their village in southwestern Syria, a group of families found shelter in Lebanon, resettling en masse in a half-built university to form one of the biggest settlements of its kind in Lebanon. Three years later, however, they now face being kicked out and dispersed in a country where finding shelter as a refugee can be especially tough. John Owens has more for VOA from the city of Saida, also known as Sidon.

Video Bat Colony: Unusual Tourist Attraction in Texas

The action hero Batman might be everyone’s favorite but real bats hardly get that kind of adoration. Put more than a million of these creatures of the night together and it only evokes images of horror. Sarah Zaman visited the largest urban bat colony in North America to see just how well bat and human get along with each other.

Video Device Shows Promise of Stopping Motion Sickness

It’s a sickening feeling — the dizziness, nausea and vomiting that comes with motion sickness. But a device now being developed could stop motion sickness by suppressing certain signals in the brain. VOA’s Deborah Block reports.

Video Making a Mint

While apples, corn, and cranberries top the list of fall produce in the US, it’s also the time to harvest gum, candy, and toothpaste—or at least the oil that makes them minty fresh. Erika Celeste reports from South Bend, Indiana on the mint harvest.

Video Activists Decry Lagos Slum Demolition

Acting on a court order, authorities in Nigeria demolished a slum last month in the commercial capital, Lagos. But human rights activists say the order was illegal, and the community was razed to make way for a government housing project. Chris Stein has more from Lagos.

Video TPP Agreed, But Faces Stiff Opposition

President Barack Obama promoted the Trans-Pacific Partnership on Tuesday, one day after 12 Pacific Rim nations reached the free trade deal in Atlanta. The controversial pact that would involve about 40 percent of global trade still needs approval by lawmakers in respective countries. Zlatica Hoke reports Obama is facing strong opposition to the deal, including from members of his own party.

Video Ukranian Artist Portrays Putin in an Unusual Way

As Russian President Vladimir Putin was addressing the United Nations in New York last month, he was also being featured in an art exhibition in Washington. It’s not a flattering exhibit. It’s done by a Ukrainian artist in a unique medium. And its creator says it’s not only a work of art - it’s a political statement. VOA’s Tetiana Kharchenko has more.

VOA Blogs

World Currencies


Rates may not be current.