Speaker 1: Silicon Valley can kiss any sweetheart tax deals in the
Speaker 1: European Union goodbye. The EU is tightening the screws on
Speaker 1: the multinationals and the countries they operate in, sending a
Speaker 1: warning in the form of tax bills and court auctions.
Speaker 1: Court actions. EU regulators slapped Amazon with the two nine
Speaker 1: four million dollar tax bill and ordered Luxembourg to collect it.
Speaker 1: And remember that record fifteen point three million dollars in
Speaker 1: back taxes that Apple was ordered to pay last year.
Speaker 1: The EU says it will take Ireland to court for
Speaker 1: failing to collect those back taxes. The USE Competition Commissioner
Speaker 1: has been accused of unfairly targeting US tech companies, but
Speaker 1: Margretha Stayer explained that the point of the e USE
Speaker 1: rules is to make sure that companies compete on the
Speaker 1: merits these routes that we have in common. They prevents
Speaker 1: member states from giving unfair advantages to select its companies.
Speaker 1: For example, a member states cannot give benefits to a
Speaker 1: multinational group we shall not available to local businesses. The
Speaker 1: US competition officials have been on something of a crusade
Speaker 1: since to unearthed deals among the thousands of otherwise legal
Speaker 1: tax packs governments have arranged for companies. My guests are
Speaker 1: Ety Greenberg, professor at Georgetown University Law Center and J.
Speaker 1: Richard Harvey, professor at Villanova University School of Law. Dick
Speaker 1: explained the e use problems with the low tax rates
Speaker 1: that Amazon has gotten from having its European headquarters in Luxembourg. Well,
Speaker 1: I guess what Amazon has done is they have two
Speaker 1: principal entities in Luxembourg. They have an intangibles holding company
Speaker 1: and they have an operating company. And the holding company
Speaker 1: doesn't pay any taxes because it's organized as a partnership.
Speaker 1: So it doesn't sake Einstein to figure out that. From
Speaker 1: a planning perspective, what they wanted to do was shift
Speaker 1: as much income out of the operating company into the
Speaker 1: holding company. And that's what they did by transferring some
Speaker 1: intellectual property rights basically their web shopping platform, and they
Speaker 1: transfferred that from the US to the Luxembourg holding company
Speaker 1: and then started charging royalty payments back to the operating company.
Speaker 1: And Luxembourg objected to it because they got a private
Speaker 1: ruling and they're arguing that the price at which was
Speaker 1: being charged was not an arms length price. And then
Speaker 1: they're also arguing that the holding company really had no
Speaker 1: substance that had had no real employees or property or
Speaker 1: what have you. So as a result, they're basically attempting
Speaker 1: to disregard that entity and then requesting that Luxembourg go
Speaker 1: and collect up to the two million dollars you refer to.
Speaker 1: Now I emphasized it's up to two million, and it's
Speaker 1: really up to Luxembourg to go and calculate it, and
Speaker 1: they could end up calculating something less. But anyway, that'll
Speaker 1: give your or your listeners on background and what are
Speaker 1: the arguments that Luxembourg and Amazon is making ETI because
Speaker 1: they say that this is that Amazon has not been
Speaker 1: granted incompatible state aid and Amazon said it's considering an
Speaker 1: appeal right. So, I mean, I think it's important for
Speaker 1: the listeners to understand the general context first, like the
Speaker 1: international tax environment around the world is just becoming much
Speaker 1: less stable. Uh and the European in Stade investigations with
Speaker 1: respect to these ruling practices just to represent an extreme
Speaker 1: example of the emerging trend um. The decisions that respecting
Speaker 1: Amazon and the the was to be clear, fifteen point
Speaker 1: three billion dollar U attempts to force Ireland and to
Speaker 1: collect more quickly from Apple are just instances of these
Speaker 1: state A things. And basically the way this law works,
Speaker 1: right is that, um, you are prohibits so called state
Speaker 1: aid that threatens to distort competition by being wearing certain businesses,
Speaker 1: and the European Commission can retroactively okay under that law
Speaker 1: demand assessments that reach back up to ten years when
Speaker 1: it labels a tax results state is Uh. These laws
Speaker 1: back to the fifties and they were originally intended to
Speaker 1: prevent EU member states from subsizing national champion companies. Right.
Speaker 1: So the idea was, while France shouldn't give money to
Speaker 1: Air France, which makes affairs between France and Germany cheaper
Speaker 1: than Luftanza flights. Okay, that was the original idea. In contrast,
Speaker 1: in these recent cases against US businesses, the Commission is
Speaker 1: claiming the EU member states provided illegal steed aid to
Speaker 1: some US companies merely by providing them legal certainty through
Speaker 1: tax rulings to clarified how generally applicable national law would
Speaker 1: apply to those companies. Uh. Facts, And you know this
Speaker 1: new trend is just novel and unprecedented, and it doesn't
Speaker 1: really you know, in the view of the company that,
Speaker 1: in my view, meet the Commission to own tax for
Speaker 1: finding state aid because of the currents of rulings issue
Speaker 1: weren't selective. In other words, everybody knows that everybody could
Speaker 1: get these rulings. So then the issue is who do
Speaker 1: you enforce against if you suddenly decide that no one
Speaker 1: should have gotten the rulings number one and then the two.
Speaker 1: If it's not selective, it doesn't need your test. That's
Speaker 1: your key test to to do something special for this
Speaker 1: company as opposed to give sweetheart deals for everyone. And
Speaker 1: here's the thing. Luxembourg gave sweetheart deals from to everybody. Importantly,
Speaker 1: they did it while a guy um while the current
Speaker 1: President of the European Commission was the Prime Minister of Luxembourg,
Speaker 1: and he knew. We've been talking about the EU crackdown
Speaker 1: on taxes for multinational corporations with Professor E. Ti Grienberg
Speaker 1: of Georgetown University Law School and Professor J. Richard Harvey
Speaker 1: of Villanova University School of Law. DICK. US officials have
Speaker 1: criticized the EU tax investigations and finds, complaining in one
Speaker 1: letter at the investigations appear to be targeting US companies disproportionately.
Speaker 1: Is that the case in your mind? Well, it's hard
Speaker 1: to tell. Certainly, some of the big companies mentioned when
Speaker 1: you talk about Starbucks, Apple, Amazon, which are three cases
Speaker 1: that they've already given final rulings on, and then I
Speaker 1: think McDonald's is in the pipeline, so they're all American companies.
Speaker 1: They did go after a finance company which is not American,
Speaker 1: and then they went after thirty five or so companies
Speaker 1: that were taking advantages in Belgium rulings, and most of
Speaker 1: those were apparently non US companies. So it's hard to say,
Speaker 1: but certainly the big ticket, the big items when you
Speaker 1: assess apples close to fifteen billion dollars, that certainly gets
Speaker 1: people's attention. So that has been a criticism of the EU.
Speaker 1: Whether it's justified or not, I'm not really sure, and
Speaker 1: of course Margrita Stayer has denied that many times. Let's
Speaker 1: talk a little bit about the whole investigation ETAI, which
Speaker 1: has been something of a crusade for the EU competition
Speaker 1: officials since what kind of unfair practices or deals are
Speaker 1: they looking at? Right? Well, so let's let's let's let's
Speaker 1: sort of distinguish between two different um things that are
Speaker 1: going on. Historically, the Commission has looked at uh when
Speaker 1: an entire regime, right, uh, an entire system of tax
Speaker 1: that is being run administratively by a country provides unfair
Speaker 1: advantages to a specific group of companies. So that's like
Speaker 1: the Belgian example that Dick from mentions, that's that. That's
Speaker 1: kind of classic old school Competition Commission investigation into tax. Okay,
Speaker 1: here what the Commission passion and has the Belgian one?
Speaker 1: But then in the other cases they're saying no, no,
Speaker 1: there's a general practice, a practice of providing companies legal certainty,
Speaker 1: generally speaking about something called transfer pricing, And we're gonna
Speaker 1: say that in general that practice is um fine, there's
Speaker 1: nothing wrong with with with companies wanting legal certainty your
Speaker 1: company or countries giving it. We're just gonna single out
Speaker 1: specific companies um arrangements and agreements and we're going to
Speaker 1: retroactively attacks them going back ten years and act um.
Speaker 1: You know, these businesses to pay up into the billions
Speaker 1: of dollars for um uh, you know, going to a
Speaker 1: country with their facts and saying here my fact, now,
Speaker 1: what's the right transfer pricing results and then simply accepting
Speaker 1: the number that the government provided as the correct results. Now,
Speaker 1: the other thing for listeners to understand is that the
Speaker 1: way this works under US law is that these payments
Speaker 1: that these retroactive payments US companies are being asked to
Speaker 1: make are creditable tax is under US law. They're they're
Speaker 1: they're treated as income taxes. Probably, so the Commission's decisions
Speaker 1: actually don't amount to demanding a multibillion dollar payment from
Speaker 1: US companies. They basically, because of the foreign tax credit,
Speaker 1: amounts to asking for a transfer from US taxpayers to
Speaker 1: the EU member states. The Commission says active illegally, because
Speaker 1: the way it's works is you reimburse the country that
Speaker 1: gave the ruling. So the Commission says, Luxembourg acted illegally
Speaker 1: in telling Amazon something, and the remedy is that Amazon
Speaker 1: pays Luxembourg two million dollars. So Luxembourg actu llegally and
Speaker 1: the penalty is they get two nine million dollars. And then,
Speaker 1: because the way law operates, you know, as much of
Speaker 1: that cost doesn't even come from Amazon. From so that
Speaker 1: gas I want, I want to go to the appeals
Speaker 1: because this is the fifth Amazon a series of EU
Speaker 1: decisions and they her there are appeals, but the appeals
Speaker 1: haven't been heard yet. And it also it puts them
Speaker 1: in a position, for example, Ireland, where it's in this
Speaker 1: position of appealing but explaining how collecting the tax in
Speaker 1: the meantime, it puts it in a different difficult position.
Speaker 1: So what might happen with the appeals? Well, I think
Speaker 1: that's the sixty four thousand dollar question, and it could
Speaker 1: take many years to work its way through the EU
Speaker 1: Court of Justice because, as Ti mentions, this is a
Speaker 1: novel argument that's being made. But historically the EU Court
Speaker 1: of Justice has upheld UH state aid decisions. So it'll
Speaker 1: be very interesting from my perspective to see how the
Speaker 1: courts deal with this. But it's going to take several years,
Speaker 1: and in the meantime, companies like Apple are probably going
Speaker 1: to have to post a fifteen billion dollar scrow payment
Speaker 1: with Ireland in order to proceed. And just briefly, eat
Speaker 1: I explain Ireland's problem at this point in trying to
Speaker 1: collect this and what it's considering well, I mean, you know,
Speaker 1: I don't I don't claim to have like a deep
Speaker 1: understanding of Irish um law. Ireland UH opposes the finding
Speaker 1: of a commission and will litigate against it. It has
Speaker 1: tried to come up with an escrow structure for them
Speaker 1: the Apple ruling that has to take into account how
Speaker 1: much interest Apple would owe if they lost and have
Speaker 1: to kind of end up with arrangements as Apple was
Speaker 1: to how the you know, fairly large chunk of money
Speaker 1: would be invested over the multiple years in which the
Speaker 1: money will be held in escrow. And it is UM
Speaker 1: since it thinks the commission is wrong, probably tried to
Speaker 1: be quite accommodating to Apple in working that through is
Speaker 1: my gas, as they should be if they think that
Speaker 1: Apple shouldn't be paying this money. UM. And meanwhile, you know,
Speaker 1: there's just the fact that it there's no incentive for
Speaker 1: people who think that the money shouldn't transfer hands to UM. Sorry,
Speaker 1: we'll have to end it there. Thanks so much. That's
Speaker 1: Eat Greenberger, professor at Georgetown University Law School and J.
Speaker 1: Richard Harvey, Professor at Villanova University Law School. Coming up,
Speaker 1: we're going to be talking about the reports of division
Speaker 1: and difficulty in President Trump's legal team. Will be talking
Speaker 1: with Bloomberg's White House reporter Shannon Petty Peace. This is
Speaker 1: Bloomberg