1 00:00:00,040 --> 00:00:03,200 Speaker 1: Silicon Valley can kiss any sweetheart tax deals in the 2 00:00:03,240 --> 00:00:06,960 Speaker 1: European Union goodbye. The EU is tightening the screws on 3 00:00:07,000 --> 00:00:10,399 Speaker 1: the multinationals and the countries they operate in, sending a 4 00:00:10,440 --> 00:00:13,320 Speaker 1: warning in the form of tax bills and court auctions. 5 00:00:13,800 --> 00:00:18,040 Speaker 1: Court actions. EU regulators slapped Amazon with the two nine 6 00:00:18,200 --> 00:00:21,480 Speaker 1: four million dollar tax bill and ordered Luxembourg to collect it. 7 00:00:21,960 --> 00:00:25,479 Speaker 1: And remember that record fifteen point three million dollars in 8 00:00:25,560 --> 00:00:28,280 Speaker 1: back taxes that Apple was ordered to pay last year. 9 00:00:28,720 --> 00:00:31,480 Speaker 1: The EU says it will take Ireland to court for 10 00:00:31,560 --> 00:00:35,600 Speaker 1: failing to collect those back taxes. The USE Competition Commissioner 11 00:00:35,600 --> 00:00:39,680 Speaker 1: has been accused of unfairly targeting US tech companies, but 12 00:00:39,800 --> 00:00:42,840 Speaker 1: Margretha Stayer explained that the point of the e USE 13 00:00:43,000 --> 00:00:45,720 Speaker 1: rules is to make sure that companies compete on the 14 00:00:45,800 --> 00:00:50,400 Speaker 1: merits these routes that we have in common. They prevents 15 00:00:50,600 --> 00:00:56,040 Speaker 1: member states from giving unfair advantages to select its companies. 16 00:00:57,240 --> 00:01:01,400 Speaker 1: For example, a member states cannot give benefits to a 17 00:01:01,480 --> 00:01:07,160 Speaker 1: multinational group we shall not available to local businesses. The 18 00:01:07,360 --> 00:01:10,200 Speaker 1: US competition officials have been on something of a crusade 19 00:01:10,240 --> 00:01:15,000 Speaker 1: since to unearthed deals among the thousands of otherwise legal 20 00:01:15,040 --> 00:01:18,920 Speaker 1: tax packs governments have arranged for companies. My guests are 21 00:01:18,959 --> 00:01:23,440 Speaker 1: Ety Greenberg, professor at Georgetown University Law Center and J. 22 00:01:23,680 --> 00:01:27,840 Speaker 1: Richard Harvey, professor at Villanova University School of Law. Dick 23 00:01:28,080 --> 00:01:31,600 Speaker 1: explained the e use problems with the low tax rates 24 00:01:31,600 --> 00:01:37,200 Speaker 1: that Amazon has gotten from having its European headquarters in Luxembourg. Well, 25 00:01:37,240 --> 00:01:39,479 Speaker 1: I guess what Amazon has done is they have two 26 00:01:39,520 --> 00:01:43,520 Speaker 1: principal entities in Luxembourg. They have an intangibles holding company 27 00:01:43,560 --> 00:01:46,560 Speaker 1: and they have an operating company. And the holding company 28 00:01:46,680 --> 00:01:49,720 Speaker 1: doesn't pay any taxes because it's organized as a partnership. 29 00:01:50,120 --> 00:01:52,840 Speaker 1: So it doesn't sake Einstein to figure out that. From 30 00:01:52,840 --> 00:01:56,000 Speaker 1: a planning perspective, what they wanted to do was shift 31 00:01:56,040 --> 00:01:59,160 Speaker 1: as much income out of the operating company into the 32 00:01:59,200 --> 00:02:03,120 Speaker 1: holding company. And that's what they did by transferring some 33 00:02:03,560 --> 00:02:07,680 Speaker 1: intellectual property rights basically their web shopping platform, and they 34 00:02:07,720 --> 00:02:11,240 Speaker 1: transfferred that from the US to the Luxembourg holding company 35 00:02:11,320 --> 00:02:17,919 Speaker 1: and then started charging royalty payments back to the operating company. 36 00:02:18,040 --> 00:02:22,120 Speaker 1: And Luxembourg objected to it because they got a private 37 00:02:22,200 --> 00:02:25,400 Speaker 1: ruling and they're arguing that the price at which was 38 00:02:25,440 --> 00:02:28,840 Speaker 1: being charged was not an arms length price. And then 39 00:02:28,840 --> 00:02:32,160 Speaker 1: they're also arguing that the holding company really had no 40 00:02:32,280 --> 00:02:36,200 Speaker 1: substance that had had no real employees or property or 41 00:02:36,200 --> 00:02:39,000 Speaker 1: what have you. So as a result, they're basically attempting 42 00:02:39,040 --> 00:02:43,400 Speaker 1: to disregard that entity and then requesting that Luxembourg go 43 00:02:43,600 --> 00:02:47,720 Speaker 1: and collect up to the two million dollars you refer to. 44 00:02:47,840 --> 00:02:53,040 Speaker 1: Now I emphasized it's up to two million, and it's 45 00:02:53,080 --> 00:02:55,480 Speaker 1: really up to Luxembourg to go and calculate it, and 46 00:02:55,480 --> 00:02:59,560 Speaker 1: they could end up calculating something less. But anyway, that'll 47 00:02:59,560 --> 00:03:03,080 Speaker 1: give your or your listeners on background and what are 48 00:03:03,120 --> 00:03:08,519 Speaker 1: the arguments that Luxembourg and Amazon is making ETI because 49 00:03:08,560 --> 00:03:11,600 Speaker 1: they say that this is that Amazon has not been 50 00:03:11,639 --> 00:03:15,680 Speaker 1: granted incompatible state aid and Amazon said it's considering an 51 00:03:15,720 --> 00:03:19,959 Speaker 1: appeal right. So, I mean, I think it's important for 52 00:03:19,960 --> 00:03:24,120 Speaker 1: the listeners to understand the general context first, like the 53 00:03:24,160 --> 00:03:26,959 Speaker 1: international tax environment around the world is just becoming much 54 00:03:27,080 --> 00:03:31,200 Speaker 1: less stable. Uh and the European in Stade investigations with 55 00:03:31,240 --> 00:03:34,520 Speaker 1: respect to these ruling practices just to represent an extreme 56 00:03:34,680 --> 00:03:39,440 Speaker 1: example of the emerging trend um. The decisions that respecting 57 00:03:39,480 --> 00:03:42,880 Speaker 1: Amazon and the the was to be clear, fifteen point 58 00:03:42,960 --> 00:03:46,840 Speaker 1: three billion dollar U attempts to force Ireland and to 59 00:03:46,920 --> 00:03:49,720 Speaker 1: collect more quickly from Apple are just instances of these 60 00:03:49,720 --> 00:03:52,760 Speaker 1: state A things. And basically the way this law works, 61 00:03:52,880 --> 00:03:56,280 Speaker 1: right is that, um, you are prohibits so called state 62 00:03:56,320 --> 00:04:01,120 Speaker 1: aid that threatens to distort competition by being wearing certain businesses, 63 00:04:01,280 --> 00:04:05,360 Speaker 1: and the European Commission can retroactively okay under that law 64 00:04:05,640 --> 00:04:08,360 Speaker 1: demand assessments that reach back up to ten years when 65 00:04:08,360 --> 00:04:12,600 Speaker 1: it labels a tax results state is Uh. These laws 66 00:04:12,640 --> 00:04:15,040 Speaker 1: back to the fifties and they were originally intended to 67 00:04:15,080 --> 00:04:20,320 Speaker 1: prevent EU member states from subsizing national champion companies. Right. 68 00:04:20,400 --> 00:04:23,240 Speaker 1: So the idea was, while France shouldn't give money to 69 00:04:23,279 --> 00:04:26,599 Speaker 1: Air France, which makes affairs between France and Germany cheaper 70 00:04:26,600 --> 00:04:30,880 Speaker 1: than Luftanza flights. Okay, that was the original idea. In contrast, 71 00:04:31,320 --> 00:04:35,279 Speaker 1: in these recent cases against US businesses, the Commission is 72 00:04:35,320 --> 00:04:38,960 Speaker 1: claiming the EU member states provided illegal steed aid to 73 00:04:39,480 --> 00:04:43,720 Speaker 1: some US companies merely by providing them legal certainty through 74 00:04:43,800 --> 00:04:48,800 Speaker 1: tax rulings to clarified how generally applicable national law would 75 00:04:48,800 --> 00:04:52,039 Speaker 1: apply to those companies. Uh. Facts, And you know this 76 00:04:52,520 --> 00:04:55,320 Speaker 1: new trend is just novel and unprecedented, and it doesn't 77 00:04:55,360 --> 00:04:57,480 Speaker 1: really you know, in the view of the company that, 78 00:04:57,600 --> 00:05:00,160 Speaker 1: in my view, meet the Commission to own tax for 79 00:05:00,279 --> 00:05:03,040 Speaker 1: finding state aid because of the currents of rulings issue 80 00:05:03,080 --> 00:05:07,320 Speaker 1: weren't selective. In other words, everybody knows that everybody could 81 00:05:07,360 --> 00:05:11,880 Speaker 1: get these rulings. So then the issue is who do 82 00:05:11,920 --> 00:05:14,320 Speaker 1: you enforce against if you suddenly decide that no one 83 00:05:14,360 --> 00:05:17,240 Speaker 1: should have gotten the rulings number one and then the two. 84 00:05:17,240 --> 00:05:19,880 Speaker 1: If it's not selective, it doesn't need your test. That's 85 00:05:19,920 --> 00:05:22,120 Speaker 1: your key test to to do something special for this 86 00:05:22,200 --> 00:05:24,680 Speaker 1: company as opposed to give sweetheart deals for everyone. And 87 00:05:24,720 --> 00:05:29,200 Speaker 1: here's the thing. Luxembourg gave sweetheart deals from to everybody. Importantly, 88 00:05:29,520 --> 00:05:32,240 Speaker 1: they did it while a guy um while the current 89 00:05:32,800 --> 00:05:36,000 Speaker 1: President of the European Commission was the Prime Minister of Luxembourg, 90 00:05:36,279 --> 00:05:39,360 Speaker 1: and he knew. We've been talking about the EU crackdown 91 00:05:39,400 --> 00:05:44,440 Speaker 1: on taxes for multinational corporations with Professor E. Ti Grienberg 92 00:05:44,480 --> 00:05:48,200 Speaker 1: of Georgetown University Law School and Professor J. Richard Harvey 93 00:05:48,240 --> 00:05:53,640 Speaker 1: of Villanova University School of Law. DICK. US officials have 94 00:05:53,760 --> 00:05:59,279 Speaker 1: criticized the EU tax investigations and finds, complaining in one 95 00:05:59,360 --> 00:06:04,960 Speaker 1: letter at the investigations appear to be targeting US companies disproportionately. 96 00:06:05,800 --> 00:06:09,320 Speaker 1: Is that the case in your mind? Well, it's hard 97 00:06:09,360 --> 00:06:12,240 Speaker 1: to tell. Certainly, some of the big companies mentioned when 98 00:06:12,240 --> 00:06:16,520 Speaker 1: you talk about Starbucks, Apple, Amazon, which are three cases 99 00:06:16,560 --> 00:06:19,920 Speaker 1: that they've already given final rulings on, and then I 100 00:06:19,960 --> 00:06:24,240 Speaker 1: think McDonald's is in the pipeline, so they're all American companies. 101 00:06:24,839 --> 00:06:28,799 Speaker 1: They did go after a finance company which is not American, 102 00:06:28,960 --> 00:06:31,720 Speaker 1: and then they went after thirty five or so companies 103 00:06:32,200 --> 00:06:36,040 Speaker 1: that were taking advantages in Belgium rulings, and most of 104 00:06:36,080 --> 00:06:40,520 Speaker 1: those were apparently non US companies. So it's hard to say, 105 00:06:40,560 --> 00:06:43,120 Speaker 1: but certainly the big ticket, the big items when you 106 00:06:43,360 --> 00:06:48,360 Speaker 1: assess apples close to fifteen billion dollars, that certainly gets 107 00:06:48,400 --> 00:06:52,320 Speaker 1: people's attention. So that has been a criticism of the EU. 108 00:06:52,400 --> 00:06:55,520 Speaker 1: Whether it's justified or not, I'm not really sure, and 109 00:06:55,560 --> 00:07:00,880 Speaker 1: of course Margrita Stayer has denied that many times. Let's 110 00:07:00,920 --> 00:07:04,800 Speaker 1: talk a little bit about the whole investigation ETAI, which 111 00:07:05,200 --> 00:07:08,039 Speaker 1: has been something of a crusade for the EU competition 112 00:07:08,120 --> 00:07:15,240 Speaker 1: officials since what kind of unfair practices or deals are 113 00:07:15,280 --> 00:07:19,119 Speaker 1: they looking at? Right? Well, so let's let's let's let's 114 00:07:19,200 --> 00:07:23,640 Speaker 1: sort of distinguish between two different um things that are 115 00:07:23,680 --> 00:07:29,600 Speaker 1: going on. Historically, the Commission has looked at uh when 116 00:07:29,760 --> 00:07:36,240 Speaker 1: an entire regime, right, uh, an entire system of tax 117 00:07:36,800 --> 00:07:42,840 Speaker 1: that is being run administratively by a country provides unfair 118 00:07:43,080 --> 00:07:46,360 Speaker 1: advantages to a specific group of companies. So that's like 119 00:07:46,440 --> 00:07:50,600 Speaker 1: the Belgian example that Dick from mentions, that's that. That's 120 00:07:50,680 --> 00:07:56,320 Speaker 1: kind of classic old school Competition Commission investigation into tax. Okay, 121 00:07:56,880 --> 00:07:59,320 Speaker 1: here what the Commission passion and has the Belgian one? 122 00:07:59,400 --> 00:08:01,200 Speaker 1: But then in the other cases they're saying no, no, 123 00:08:01,600 --> 00:08:07,360 Speaker 1: there's a general practice, a practice of providing companies legal certainty, 124 00:08:07,440 --> 00:08:10,840 Speaker 1: generally speaking about something called transfer pricing, And we're gonna 125 00:08:10,840 --> 00:08:14,440 Speaker 1: say that in general that practice is um fine, there's 126 00:08:14,440 --> 00:08:17,600 Speaker 1: nothing wrong with with with companies wanting legal certainty your 127 00:08:17,600 --> 00:08:20,760 Speaker 1: company or countries giving it. We're just gonna single out 128 00:08:20,880 --> 00:08:27,000 Speaker 1: specific companies um arrangements and agreements and we're going to 129 00:08:27,480 --> 00:08:32,040 Speaker 1: retroactively attacks them going back ten years and act um. 130 00:08:32,080 --> 00:08:34,480 Speaker 1: You know, these businesses to pay up into the billions 131 00:08:34,480 --> 00:08:38,040 Speaker 1: of dollars for um uh, you know, going to a 132 00:08:38,080 --> 00:08:41,199 Speaker 1: country with their facts and saying here my fact, now, 133 00:08:41,240 --> 00:08:44,960 Speaker 1: what's the right transfer pricing results and then simply accepting 134 00:08:45,000 --> 00:08:48,800 Speaker 1: the number that the government provided as the correct results. Now, 135 00:08:48,840 --> 00:08:51,600 Speaker 1: the other thing for listeners to understand is that the 136 00:08:51,640 --> 00:08:55,200 Speaker 1: way this works under US law is that these payments 137 00:08:55,240 --> 00:08:57,920 Speaker 1: that these retroactive payments US companies are being asked to 138 00:08:57,960 --> 00:09:01,679 Speaker 1: make are creditable tax is under US law. They're they're 139 00:09:01,679 --> 00:09:05,320 Speaker 1: they're treated as income taxes. Probably, so the Commission's decisions 140 00:09:05,360 --> 00:09:09,320 Speaker 1: actually don't amount to demanding a multibillion dollar payment from 141 00:09:09,440 --> 00:09:13,720 Speaker 1: US companies. They basically, because of the foreign tax credit, 142 00:09:14,000 --> 00:09:18,559 Speaker 1: amounts to asking for a transfer from US taxpayers to 143 00:09:18,880 --> 00:09:22,720 Speaker 1: the EU member states. The Commission says active illegally, because 144 00:09:22,760 --> 00:09:25,720 Speaker 1: the way it's works is you reimburse the country that 145 00:09:25,880 --> 00:09:31,280 Speaker 1: gave the ruling. So the Commission says, Luxembourg acted illegally 146 00:09:31,760 --> 00:09:36,439 Speaker 1: in telling Amazon something, and the remedy is that Amazon 147 00:09:36,960 --> 00:09:42,360 Speaker 1: pays Luxembourg two million dollars. So Luxembourg actu llegally and 148 00:09:42,400 --> 00:09:45,839 Speaker 1: the penalty is they get two nine million dollars. And then, 149 00:09:45,840 --> 00:09:48,360 Speaker 1: because the way law operates, you know, as much of 150 00:09:48,400 --> 00:09:52,040 Speaker 1: that cost doesn't even come from Amazon. From so that 151 00:09:52,160 --> 00:09:54,679 Speaker 1: gas I want, I want to go to the appeals 152 00:09:54,720 --> 00:09:57,920 Speaker 1: because this is the fifth Amazon a series of EU 153 00:09:58,040 --> 00:10:02,640 Speaker 1: decisions and they her there are appeals, but the appeals 154 00:10:02,640 --> 00:10:05,360 Speaker 1: haven't been heard yet. And it also it puts them 155 00:10:05,360 --> 00:10:08,800 Speaker 1: in a position, for example, Ireland, where it's in this 156 00:10:08,960 --> 00:10:12,680 Speaker 1: position of appealing but explaining how collecting the tax in 157 00:10:12,720 --> 00:10:16,000 Speaker 1: the meantime, it puts it in a different difficult position. 158 00:10:16,440 --> 00:10:21,360 Speaker 1: So what might happen with the appeals? Well, I think 159 00:10:21,400 --> 00:10:24,240 Speaker 1: that's the sixty four thousand dollar question, and it could 160 00:10:24,240 --> 00:10:27,439 Speaker 1: take many years to work its way through the EU 161 00:10:27,520 --> 00:10:31,240 Speaker 1: Court of Justice because, as Ti mentions, this is a 162 00:10:31,320 --> 00:10:36,520 Speaker 1: novel argument that's being made. But historically the EU Court 163 00:10:36,520 --> 00:10:40,800 Speaker 1: of Justice has upheld UH state aid decisions. So it'll 164 00:10:40,840 --> 00:10:44,160 Speaker 1: be very interesting from my perspective to see how the 165 00:10:44,200 --> 00:10:46,960 Speaker 1: courts deal with this. But it's going to take several years, 166 00:10:47,440 --> 00:10:50,440 Speaker 1: and in the meantime, companies like Apple are probably going 167 00:10:50,480 --> 00:10:55,679 Speaker 1: to have to post a fifteen billion dollar scrow payment 168 00:10:55,800 --> 00:11:01,720 Speaker 1: with Ireland in order to proceed. And just briefly, eat 169 00:11:01,800 --> 00:11:06,200 Speaker 1: I explain Ireland's problem at this point in trying to 170 00:11:06,280 --> 00:11:10,640 Speaker 1: collect this and what it's considering well, I mean, you know, 171 00:11:10,720 --> 00:11:13,720 Speaker 1: I don't I don't claim to have like a deep 172 00:11:13,800 --> 00:11:20,920 Speaker 1: understanding of Irish um law. Ireland UH opposes the finding 173 00:11:20,960 --> 00:11:23,920 Speaker 1: of a commission and will litigate against it. It has 174 00:11:24,000 --> 00:11:28,439 Speaker 1: tried to come up with an escrow structure for them 175 00:11:28,679 --> 00:11:31,200 Speaker 1: the Apple ruling that has to take into account how 176 00:11:31,280 --> 00:11:34,480 Speaker 1: much interest Apple would owe if they lost and have 177 00:11:34,679 --> 00:11:37,120 Speaker 1: to kind of end up with arrangements as Apple was 178 00:11:37,200 --> 00:11:39,880 Speaker 1: to how the you know, fairly large chunk of money 179 00:11:39,880 --> 00:11:42,959 Speaker 1: would be invested over the multiple years in which the 180 00:11:43,360 --> 00:11:45,760 Speaker 1: money will be held in escrow. And it is UM 181 00:11:45,840 --> 00:11:49,120 Speaker 1: since it thinks the commission is wrong, probably tried to 182 00:11:49,200 --> 00:11:52,880 Speaker 1: be quite accommodating to Apple in working that through is 183 00:11:52,920 --> 00:11:54,880 Speaker 1: my gas, as they should be if they think that 184 00:11:54,920 --> 00:11:58,280 Speaker 1: Apple shouldn't be paying this money. UM. And meanwhile, you know, 185 00:11:58,440 --> 00:12:02,040 Speaker 1: there's just the fact that it there's no incentive for 186 00:12:02,040 --> 00:12:06,520 Speaker 1: people who think that the money shouldn't transfer hands to UM. Sorry, 187 00:12:06,559 --> 00:12:09,280 Speaker 1: we'll have to end it there. Thanks so much. That's 188 00:12:09,280 --> 00:12:12,599 Speaker 1: Eat Greenberger, professor at Georgetown University Law School and J. 189 00:12:12,800 --> 00:12:16,240 Speaker 1: Richard Harvey, Professor at Villanova University Law School. Coming up, 190 00:12:16,280 --> 00:12:18,800 Speaker 1: we're going to be talking about the reports of division 191 00:12:18,800 --> 00:12:22,439 Speaker 1: and difficulty in President Trump's legal team. Will be talking 192 00:12:22,440 --> 00:12:25,600 Speaker 1: with Bloomberg's White House reporter Shannon Petty Peace. This is 193 00:12:25,600 --> 00:12:26,200 Speaker 1: Bloomberg