EU Regulators Slap Big Taxes on U.S. Tech Giants (Audio)

The EU says it will take Ireland to court for failing to collect those back taxes. The USE Competition Commissioner has been accused of unfairly targeting US tech companies, but Margretha Stayer explained that the point of the e USE rules is to make sure that companies compete on the merits these routes that we have in common. They prevents member states from giving unfair advantages to select its companies. For example, a member states cannot give benefits to a

multinational group we shall not available to local businesses. The US competition officials have been on something of a crusade since to unearthed deals among the thousands of otherwise legal tax packs governments have arranged for companies. My guests are Ety Greenberg, professor at Georgetown University Law Center and J. Richard Harvey, professor at Villanova University School of Law. Dick explained the e use problems with the low tax rates

that Amazon has gotten from having its European headquarters in Luxembourg. Well, I guess what Amazon has done is they have two principal entities in Luxembourg. They have an intangibles holding company and they have an operating company. And the holding company doesn't pay any taxes because it's organized as a partnership. So it doesn't sake Einstein to figure out that. From a planning perspective, what they wanted to do was shift as much income out of the operating company into the

holding company. And that's what they did by transferring some intellectual property rights basically their web shopping platform, and they transfferred that from the US to the Luxembourg holding company and then started charging royalty payments back to the operating company. And Luxembourg objected to it because they got a private ruling and they're arguing that the price at which was

being charged was not an arms length price. And then they're also arguing that the holding company really had no substance that had had no real employees or property or what have you. So as a result, they're basically attempting to disregard that entity and then requesting that Luxembourg go and collect up to the two million dollars you refer to. Now I emphasized it's up to two million, and it's really up to Luxembourg to go and calculate it, and

they could end up calculating something less. But anyway, that'll give your or your listeners on background and what are the arguments that Luxembourg and Amazon is making ETI because they say that this is that Amazon has not been granted incompatible state aid and Amazon said it's considering an appeal right. So, I mean, I think it's important for the listeners to understand the general context first, like the international tax environment around the world is just becoming much

less stable. Uh and the European in Stade investigations with respect to these ruling practices just to represent an extreme example of the emerging trend um. The decisions that respecting Amazon and the the was to be clear, fifteen point three billion dollar U attempts to force Ireland and to collect more quickly from Apple are just instances of these

state A things. And basically the way this law works, right is that, um, you are prohibits so called state aid that threatens to distort competition by being wearing certain businesses, and the European Commission can retroactively okay under that law demand assessments that reach back up to ten years when it labels a tax results state is Uh. These laws back to the fifties and they were originally intended to prevent EU member states from subsizing national champion companies. Right.

So the idea was, while France shouldn't give money to Air France, which makes affairs between France and Germany cheaper than Luftanza flights. Okay, that was the original idea. In contrast, in these recent cases against US businesses, the Commission is claiming the EU member states provided illegal steed aid to some US companies merely by providing them legal certainty through tax rulings to clarified how generally applicable national law would

apply to those companies. Uh. Facts, And you know this new trend is just novel and unprecedented, and it doesn't really you know, in the view of the company that, in my view, meet the Commission to own tax for finding state aid because of the currents of rulings issue weren't selective. In other words, everybody knows that everybody could

get these rulings. So then the issue is who do you enforce against if you suddenly decide that no one should have gotten the rulings number one and then the two. If it's not selective, it doesn't need your test. That's your key test to to do something special for this company as opposed to give sweetheart deals for everyone. And

here's the thing. Luxembourg gave sweetheart deals from to everybody. Importantly, they did it while a guy um while the current President of the European Commission was the Prime Minister of Luxembourg, and he knew. We've been talking about the EU crackdown on taxes for multinational corporations with Professor E. Ti Grienberg of Georgetown University Law School and Professor J. Richard Harvey

of Villanova University School of Law. DICK. US officials have criticized the EU tax investigations and finds, complaining in one letter at the investigations appear to be targeting US companies disproportionately. Is that the case in your mind? Well, it's hard

to tell. Certainly, some of the big companies mentioned when you talk about Starbucks, Apple, Amazon, which are three cases that they've already given final rulings on, and then I think McDonald's is in the pipeline, so they're all American companies. They did go after a finance company which is not American, and then they went after thirty five or so companies that were taking advantages in Belgium rulings, and most of

those were apparently non US companies. So it's hard to say, but certainly the big ticket, the big items when you assess apples close to fifteen billion dollars, that certainly gets people's attention. So that has been a criticism of the EU. Whether it's justified or not, I'm not really sure, and

of course Margrita Stayer has denied that many times. Let's talk a little bit about the whole investigation ETAI, which has been something of a crusade for the EU competition officials since what kind of unfair practices or deals are they looking at? Right? Well, so let's let's let's let's sort of distinguish between two different um things that are

going on. Historically, the Commission has looked at uh when an entire regime, right, uh, an entire system of tax that is being run administratively by a country provides unfair advantages to a specific group of companies. So that's like the Belgian example that Dick from mentions, that's that. That's kind of classic old school Competition Commission investigation into tax. Okay, here what the Commission passion and has the Belgian one?

But then in the other cases they're saying no, no, there's a general practice, a practice of providing companies legal certainty, generally speaking about something called transfer pricing, And we're gonna say that in general that practice is um fine, there's nothing wrong with with with companies wanting legal certainty your

company or countries giving it. We're just gonna single out specific companies um arrangements and agreements and we're going to retroactively attacks them going back ten years and act um. You know, these businesses to pay up into the billions of dollars for um uh, you know, going to a country with their facts and saying here my fact, now, what's the right transfer pricing results and then simply accepting

the number that the government provided as the correct results. Now, the other thing for listeners to understand is that the way this works under US law is that these payments that these retroactive payments US companies are being asked to make are creditable tax is under US law. They're they're they're treated as income taxes. Probably, so the Commission's decisions actually don't amount to demanding a multibillion dollar payment from

US companies. They basically, because of the foreign tax credit, amounts to asking for a transfer from US taxpayers to the EU member states. The Commission says active illegally, because the way it's works is you reimburse the country that gave the ruling. So the Commission says, Luxembourg acted illegally in telling Amazon something, and the remedy is that Amazon pays Luxembourg two million dollars. So Luxembourg actu llegally and

the penalty is they get two nine million dollars. And then, because the way law operates, you know, as much of that cost doesn't even come from Amazon. From so that gas I want, I want to go to the appeals because this is the fifth Amazon a series of EU decisions and they her there are appeals, but the appeals

haven't been heard yet. And it also it puts them in a position, for example, Ireland, where it's in this position of appealing but explaining how collecting the tax in the meantime, it puts it in a different difficult position. So what might happen with the appeals? Well, I think that's the sixty four thousand dollar question, and it could take many years to work its way through the EU Court of Justice because, as Ti mentions, this is a

novel argument that's being made. But historically the EU Court of Justice has upheld UH state aid decisions. So it'll be very interesting from my perspective to see how the courts deal with this. But it's going to take several years, and in the meantime, companies like Apple are probably going to have to post a fifteen billion dollar scrow payment

with Ireland in order to proceed. And just briefly, eat I explain Ireland's problem at this point in trying to collect this and what it's considering well, I mean, you know, I don't I don't claim to have like a deep understanding of Irish um law. Ireland UH opposes the finding

of a commission and will litigate against it. It has tried to come up with an escrow structure for them the Apple ruling that has to take into account how much interest Apple would owe if they lost and have to kind of end up with arrangements as Apple was to how the you know, fairly large chunk of money would be invested over the multiple years in which the

money will be held in escrow. And it is UM since it thinks the commission is wrong, probably tried to be quite accommodating to Apple in working that through is my gas, as they should be if they think that Apple shouldn't be paying this money. UM. And meanwhile, you know, there's just the fact that it there's no incentive for people who think that the money shouldn't transfer hands to UM. Sorry,

we'll have to end it there. Thanks so much. That's Eat Greenberger, professor at Georgetown University Law School and J. Richard Harvey, Professor at Villanova University Law School. Coming up, we're going to be talking about the reports of division and difficulty in President Trump's legal team. Will be talking with Bloomberg's White House reporter Shannon Petty Peace. This is Bloomberg