WEBVTT - EU Regulators Slap Big Taxes on U.S. Tech Giants (Audio) 0:00:00.040 --> 0:00:03.200 Silicon Valley can kiss any sweetheart tax deals in the 0:00:03.240 --> 0:00:06.960 European Union goodbye. The EU is tightening the screws on 0:00:07.000 --> 0:00:10.399 the multinationals and the countries they operate in, sending a 0:00:10.440 --> 0:00:13.320 warning in the form of tax bills and court auctions. 0:00:13.800 --> 0:00:18.040 Court actions. EU regulators slapped Amazon with the two nine 0:00:18.200 --> 0:00:21.480 four million dollar tax bill and ordered Luxembourg to collect it. 0:00:21.960 --> 0:00:25.479 And remember that record fifteen point three million dollars in 0:00:25.560 --> 0:00:28.280 back taxes that Apple was ordered to pay last year. 0:00:28.720 --> 0:00:31.480 The EU says it will take Ireland to court for 0:00:31.560 --> 0:00:35.600 failing to collect those back taxes. The USE Competition Commissioner 0:00:35.600 --> 0:00:39.680 has been accused of unfairly targeting US tech companies, but 0:00:39.800 --> 0:00:42.840 Margretha Stayer explained that the point of the e USE 0:00:43.000 --> 0:00:45.720 rules is to make sure that companies compete on the 0:00:45.800 --> 0:00:50.400 merits these routes that we have in common. They prevents 0:00:50.600 --> 0:00:56.040 member states from giving unfair advantages to select its companies. 0:00:57.240 --> 0:01:01.400 For example, a member states cannot give benefits to a 0:01:01.480 --> 0:01:07.160 multinational group we shall not available to local businesses. The 0:01:07.360 --> 0:01:10.200 US competition officials have been on something of a crusade 0:01:10.240 --> 0:01:15.000 since to unearthed deals among the thousands of otherwise legal 0:01:15.040 --> 0:01:18.920 tax packs governments have arranged for companies. My guests are 0:01:18.959 --> 0:01:23.440 Ety Greenberg, professor at Georgetown University Law Center and J. 0:01:23.680 --> 0:01:27.840 Richard Harvey, professor at Villanova University School of Law. Dick 0:01:28.080 --> 0:01:31.600 explained the e use problems with the low tax rates 0:01:31.600 --> 0:01:37.200 that Amazon has gotten from having its European headquarters in Luxembourg. Well, 0:01:37.240 --> 0:01:39.479 I guess what Amazon has done is they have two 0:01:39.520 --> 0:01:43.520 principal entities in Luxembourg. They have an intangibles holding company 0:01:43.560 --> 0:01:46.560 and they have an operating company. And the holding company 0:01:46.680 --> 0:01:49.720 doesn't pay any taxes because it's organized as a partnership. 0:01:50.120 --> 0:01:52.840 So it doesn't sake Einstein to figure out that. From 0:01:52.840 --> 0:01:56.000 a planning perspective, what they wanted to do was shift 0:01:56.040 --> 0:01:59.160 as much income out of the operating company into the 0:01:59.200 --> 0:02:03.120 holding company. And that's what they did by transferring some 0:02:03.560 --> 0:02:07.680 intellectual property rights basically their web shopping platform, and they 0:02:07.720 --> 0:02:11.240 transfferred that from the US to the Luxembourg holding company 0:02:11.320 --> 0:02:17.919 and then started charging royalty payments back to the operating company. 0:02:18.040 --> 0:02:22.120 And Luxembourg objected to it because they got a private 0:02:22.200 --> 0:02:25.400 ruling and they're arguing that the price at which was 0:02:25.440 --> 0:02:28.840 being charged was not an arms length price. And then 0:02:28.840 --> 0:02:32.160 they're also arguing that the holding company really had no 0:02:32.280 --> 0:02:36.200 substance that had had no real employees or property or 0:02:36.200 --> 0:02:39.000 what have you. So as a result, they're basically attempting 0:02:39.040 --> 0:02:43.400 to disregard that entity and then requesting that Luxembourg go 0:02:43.600 --> 0:02:47.720 and collect up to the two million dollars you refer to. 0:02:47.840 --> 0:02:53.040 Now I emphasized it's up to two million, and it's 0:02:53.080 --> 0:02:55.480 really up to Luxembourg to go and calculate it, and 0:02:55.480 --> 0:02:59.560 they could end up calculating something less. But anyway, that'll 0:02:59.560 --> 0:03:03.080 give your or your listeners on background and what are 0:03:03.120 --> 0:03:08.519 the arguments that Luxembourg and Amazon is making ETI because 0:03:08.560 --> 0:03:11.600 they say that this is that Amazon has not been 0:03:11.639 --> 0:03:15.680 granted incompatible state aid and Amazon said it's considering an 0:03:15.720 --> 0:03:19.959 appeal right. So, I mean, I think it's important for 0:03:19.960 --> 0:03:24.120 the listeners to understand the general context first, like the 0:03:24.160 --> 0:03:26.959 international tax environment around the world is just becoming much 0:03:27.080 --> 0:03:31.200 less stable. Uh and the European in Stade investigations with 0:03:31.240 --> 0:03:34.520 respect to these ruling practices just to represent an extreme 0:03:34.680 --> 0:03:39.440 example of the emerging trend um. The decisions that respecting 0:03:39.480 --> 0:03:42.880 Amazon and the the was to be clear, fifteen point 0:03:42.960 --> 0:03:46.840 three billion dollar U attempts to force Ireland and to 0:03:46.920 --> 0:03:49.720 collect more quickly from Apple are just instances of these 0:03:49.720 --> 0:03:52.760 state A things. And basically the way this law works, 0:03:52.880 --> 0:03:56.280 right is that, um, you are prohibits so called state 0:03:56.320 --> 0:04:01.120 aid that threatens to distort competition by being wearing certain businesses, 0:04:01.280 --> 0:04:05.360 and the European Commission can retroactively okay under that law 0:04:05.640 --> 0:04:08.360 demand assessments that reach back up to ten years when 0:04:08.360 --> 0:04:12.600 it labels a tax results state is Uh. These laws 0:04:12.640 --> 0:04:15.040 back to the fifties and they were originally intended to 0:04:15.080 --> 0:04:20.320 prevent EU member states from subsizing national champion companies. Right. 0:04:20.400 --> 0:04:23.240 So the idea was, while France shouldn't give money to 0:04:23.279 --> 0:04:26.599 Air France, which makes affairs between France and Germany cheaper 0:04:26.600 --> 0:04:30.880 than Luftanza flights. Okay, that was the original idea. In contrast, 0:04:31.320 --> 0:04:35.279 in these recent cases against US businesses, the Commission is 0:04:35.320 --> 0:04:38.960 claiming the EU member states provided illegal steed aid to 0:04:39.480 --> 0:04:43.720 some US companies merely by providing them legal certainty through 0:04:43.800 --> 0:04:48.800 tax rulings to clarified how generally applicable national law would 0:04:48.800 --> 0:04:52.039 apply to those companies. Uh. Facts, And you know this 0:04:52.520 --> 0:04:55.320 new trend is just novel and unprecedented, and it doesn't 0:04:55.360 --> 0:04:57.480 really you know, in the view of the company that, 0:04:57.600 --> 0:05:00.160 in my view, meet the Commission to own tax for 0:05:00.279 --> 0:05:03.040 finding state aid because of the currents of rulings issue 0:05:03.080 --> 0:05:07.320 weren't selective. In other words, everybody knows that everybody could 0:05:07.360 --> 0:05:11.880 get these rulings. So then the issue is who do 0:05:11.920 --> 0:05:14.320 you enforce against if you suddenly decide that no one 0:05:14.360 --> 0:05:17.240 should have gotten the rulings number one and then the two. 0:05:17.240 --> 0:05:19.880 If it's not selective, it doesn't need your test. That's 0:05:19.920 --> 0:05:22.120 your key test to to do something special for this 0:05:22.200 --> 0:05:24.680 company as opposed to give sweetheart deals for everyone. And 0:05:24.720 --> 0:05:29.200 here's the thing. Luxembourg gave sweetheart deals from to everybody. Importantly, 0:05:29.520 --> 0:05:32.240 they did it while a guy um while the current 0:05:32.800 --> 0:05:36.000 President of the European Commission was the Prime Minister of Luxembourg, 0:05:36.279 --> 0:05:39.360 and he knew. We've been talking about the EU crackdown 0:05:39.400 --> 0:05:44.440 on taxes for multinational corporations with Professor E. Ti Grienberg 0:05:44.480 --> 0:05:48.200 of Georgetown University Law School and Professor J. Richard Harvey 0:05:48.240 --> 0:05:53.640 of Villanova University School of Law. DICK. US officials have 0:05:53.760 --> 0:05:59.279 criticized the EU tax investigations and finds, complaining in one 0:05:59.360 --> 0:06:04.960 letter at the investigations appear to be targeting US companies disproportionately. 0:06:05.800 --> 0:06:09.320 Is that the case in your mind? Well, it's hard 0:06:09.360 --> 0:06:12.240 to tell. Certainly, some of the big companies mentioned when 0:06:12.240 --> 0:06:16.520 you talk about Starbucks, Apple, Amazon, which are three cases 0:06:16.560 --> 0:06:19.920 that they've already given final rulings on, and then I 0:06:19.960 --> 0:06:24.240 think McDonald's is in the pipeline, so they're all American companies. 0:06:24.839 --> 0:06:28.799 They did go after a finance company which is not American, 0:06:28.960 --> 0:06:31.720 and then they went after thirty five or so companies 0:06:32.200 --> 0:06:36.040 that were taking advantages in Belgium rulings, and most of 0:06:36.080 --> 0:06:40.520 those were apparently non US companies. So it's hard to say, 0:06:40.560 --> 0:06:43.120 but certainly the big ticket, the big items when you 0:06:43.360 --> 0:06:48.360 assess apples close to fifteen billion dollars, that certainly gets 0:06:48.400 --> 0:06:52.320 people's attention. So that has been a criticism of the EU. 0:06:52.400 --> 0:06:55.520 Whether it's justified or not, I'm not really sure, and 0:06:55.560 --> 0:07:00.880 of course Margrita Stayer has denied that many times. Let's 0:07:00.920 --> 0:07:04.800 talk a little bit about the whole investigation ETAI, which 0:07:05.200 --> 0:07:08.039 has been something of a crusade for the EU competition 0:07:08.120 --> 0:07:15.240 officials since what kind of unfair practices or deals are 0:07:15.280 --> 0:07:19.119 they looking at? Right? Well, so let's let's let's let's 0:07:19.200 --> 0:07:23.640 sort of distinguish between two different um things that are 0:07:23.680 --> 0:07:29.600 going on. Historically, the Commission has looked at uh when 0:07:29.760 --> 0:07:36.240 an entire regime, right, uh, an entire system of tax 0:07:36.800 --> 0:07:42.840 that is being run administratively by a country provides unfair 0:07:43.080 --> 0:07:46.360 advantages to a specific group of companies. So that's like 0:07:46.440 --> 0:07:50.600 the Belgian example that Dick from mentions, that's that. That's 0:07:50.680 --> 0:07:56.320 kind of classic old school Competition Commission investigation into tax. Okay, 0:07:56.880 --> 0:07:59.320 here what the Commission passion and has the Belgian one? 0:07:59.400 --> 0:08:01.200 But then in the other cases they're saying no, no, 0:08:01.600 --> 0:08:07.360 there's a general practice, a practice of providing companies legal certainty, 0:08:07.440 --> 0:08:10.840 generally speaking about something called transfer pricing, And we're gonna 0:08:10.840 --> 0:08:14.440 say that in general that practice is um fine, there's 0:08:14.440 --> 0:08:17.600 nothing wrong with with with companies wanting legal certainty your 0:08:17.600 --> 0:08:20.760 company or countries giving it. We're just gonna single out 0:08:20.880 --> 0:08:27.000 specific companies um arrangements and agreements and we're going to 0:08:27.480 --> 0:08:32.040 retroactively attacks them going back ten years and act um. 0:08:32.080 --> 0:08:34.480 You know, these businesses to pay up into the billions 0:08:34.480 --> 0:08:38.040 of dollars for um uh, you know, going to a 0:08:38.080 --> 0:08:41.199 country with their facts and saying here my fact, now, 0:08:41.240 --> 0:08:44.960 what's the right transfer pricing results and then simply accepting 0:08:45.000 --> 0:08:48.800 the number that the government provided as the correct results. Now, 0:08:48.840 --> 0:08:51.600 the other thing for listeners to understand is that the 0:08:51.640 --> 0:08:55.200 way this works under US law is that these payments 0:08:55.240 --> 0:08:57.920 that these retroactive payments US companies are being asked to 0:08:57.960 --> 0:09:01.679 make are creditable tax is under US law. They're they're 0:09:01.679 --> 0:09:05.320 they're treated as income taxes. Probably, so the Commission's decisions 0:09:05.360 --> 0:09:09.320 actually don't amount to demanding a multibillion dollar payment from 0:09:09.440 --> 0:09:13.720 US companies. They basically, because of the foreign tax credit, 0:09:14.000 --> 0:09:18.559 amounts to asking for a transfer from US taxpayers to 0:09:18.880 --> 0:09:22.720 the EU member states. The Commission says active illegally, because 0:09:22.760 --> 0:09:25.720 the way it's works is you reimburse the country that 0:09:25.880 --> 0:09:31.280 gave the ruling. So the Commission says, Luxembourg acted illegally 0:09:31.760 --> 0:09:36.439 in telling Amazon something, and the remedy is that Amazon 0:09:36.960 --> 0:09:42.360 pays Luxembourg two million dollars. So Luxembourg actu llegally and 0:09:42.400 --> 0:09:45.839 the penalty is they get two nine million dollars. And then, 0:09:45.840 --> 0:09:48.360 because the way law operates, you know, as much of 0:09:48.400 --> 0:09:52.040 that cost doesn't even come from Amazon. From so that 0:09:52.160 --> 0:09:54.679 gas I want, I want to go to the appeals 0:09:54.720 --> 0:09:57.920 because this is the fifth Amazon a series of EU 0:09:58.040 --> 0:10:02.640 decisions and they her there are appeals, but the appeals 0:10:02.640 --> 0:10:05.360 haven't been heard yet. And it also it puts them 0:10:05.360 --> 0:10:08.800 in a position, for example, Ireland, where it's in this 0:10:08.960 --> 0:10:12.680 position of appealing but explaining how collecting the tax in 0:10:12.720 --> 0:10:16.000 the meantime, it puts it in a different difficult position. 0:10:16.440 --> 0:10:21.360 So what might happen with the appeals? Well, I think 0:10:21.400 --> 0:10:24.240 that's the sixty four thousand dollar question, and it could 0:10:24.240 --> 0:10:27.439 take many years to work its way through the EU 0:10:27.520 --> 0:10:31.240 Court of Justice because, as Ti mentions, this is a 0:10:31.320 --> 0:10:36.520 novel argument that's being made. But historically the EU Court 0:10:36.520 --> 0:10:40.800 of Justice has upheld UH state aid decisions. So it'll 0:10:40.840 --> 0:10:44.160 be very interesting from my perspective to see how the 0:10:44.200 --> 0:10:46.960 courts deal with this. But it's going to take several years, 0:10:47.440 --> 0:10:50.440 and in the meantime, companies like Apple are probably going 0:10:50.480 --> 0:10:55.679 to have to post a fifteen billion dollar scrow payment 0:10:55.800 --> 0:11:01.720 with Ireland in order to proceed. And just briefly, eat 0:11:01.800 --> 0:11:06.200 I explain Ireland's problem at this point in trying to 0:11:06.280 --> 0:11:10.640 collect this and what it's considering well, I mean, you know, 0:11:10.720 --> 0:11:13.720 I don't I don't claim to have like a deep 0:11:13.800 --> 0:11:20.920 understanding of Irish um law. Ireland UH opposes the finding 0:11:20.960 --> 0:11:23.920 of a commission and will litigate against it. It has 0:11:24.000 --> 0:11:28.439 tried to come up with an escrow structure for them 0:11:28.679 --> 0:11:31.200 the Apple ruling that has to take into account how 0:11:31.280 --> 0:11:34.480 much interest Apple would owe if they lost and have 0:11:34.679 --> 0:11:37.120 to kind of end up with arrangements as Apple was 0:11:37.200 --> 0:11:39.880 to how the you know, fairly large chunk of money 0:11:39.880 --> 0:11:42.959 would be invested over the multiple years in which the 0:11:43.360 --> 0:11:45.760 money will be held in escrow. And it is UM 0:11:45.840 --> 0:11:49.120 since it thinks the commission is wrong, probably tried to 0:11:49.200 --> 0:11:52.880 be quite accommodating to Apple in working that through is 0:11:52.920 --> 0:11:54.880 my gas, as they should be if they think that 0:11:54.920 --> 0:11:58.280 Apple shouldn't be paying this money. UM. And meanwhile, you know, 0:11:58.440 --> 0:12:02.040 there's just the fact that it there's no incentive for 0:12:02.040 --> 0:12:06.520 people who think that the money shouldn't transfer hands to UM. Sorry, 0:12:06.559 --> 0:12:09.280 we'll have to end it there. Thanks so much. That's 0:12:09.280 --> 0:12:12.599 Eat Greenberger, professor at Georgetown University Law School and J. 0:12:12.800 --> 0:12:16.240 Richard Harvey, Professor at Villanova University Law School. Coming up, 0:12:16.280 --> 0:12:18.800 we're going to be talking about the reports of division 0:12:18.800 --> 0:12:22.439 and difficulty in President Trump's legal team. Will be talking 0:12:22.440 --> 0:12:25.600 with Bloomberg's White House reporter Shannon Petty Peace. This is 0:12:25.600 --> 0:12:26.200 Bloomberg