Economic Part That the Apple Company Plays in the Republic of Ireland - Case Study Example

TAX REFORM By student’s name Code + Course name Professor’s name University name City, State Date Introduction The main source of revenue for any government across the world is tax (David, 2004). Bearing in mind that it's through revenue that a government can accomplish significant developments in a country such as the building of hospitals, schools, and infrastructure, no government takes chances when it comes to tax collection. The European Union has an antitrust regulatory authority that oversees the payment of taxes by companies to all its member state. A recent case has arisen where the regulator claims that Apple, an American company, has not paid an estimated $14.5 Billion to the government of Ireland. Apple has been conducting business as one of the principles that guide Multinational corporations is; a company should be taxed by the government of the country in which it has done business and made profits. Apple opened a factory in Cork, Ireland in the year 1980. This claim by the Government of Ireland through the European Union antitrust authority has intensified the feud between the United States and the European Union. In this paper, this case by Ireland will be discussed in details. Discussion At first sight into this matter, the government of Ireland has all the rights to demand tax from Apple which has conducted its business in the country over a period of three decades and making huge profits. In the words of Clausing (2012), the tax is compulsory and therefore Apple must abide by this rule of the land. Looking also at Adams Smith’s principles of taxation, one principle is that companies and subjects ought to pay taxes to the government of the day. This should be in proportion to their level of income which means that a company which makes huge profits need to pay a relatively higher tax than those making less profit. It’s the obligation of the company to help the government accomplish significant developments which in fact turn out to be very beneficial to each and every member of the society. As Adam Smith put it, companies should note that the government is a major stakeholder towards their success especially regarding protecting them to perform their businesses peacefully without significant interruptions such as war. Without the government, it might be impossible for a company to conduct its business (Huronyi, 2012). Apple must, first of all, keep this fact in mind while appealing the case in the EU’s top court. On the other hand, looking at one of Adams Smith’s principles of taxation, tax need to be progressive. So a critical question emerges; how can a company conduct business over a period of one decade without the government of the day collecting all the necessary tax from the enterprise? This shows high extremely elevated levels of incompetence on the body charged with the role of raising the tax in Ireland. If they had entirely carried on their duties as expected, such a severe case would not have emerged bearing in mind that Apple has employed thousands of employees most of whom are the citizens of Ireland. Apple’s downfall can have very adverse effects on the economy of Ireland especially in the employment sector. The tax collection body in Ireland ought to have taken their role very seriously and avoid such cases as this one. Paying a sum of $14.5 Billion is not a light issue at all. It is a major drawback to the progress of any company even if the company is making very high profits. This case can force Apple to stop all their businesses in Ireland. The government of Ireland needs to revise their tax collection strategies so as to avoid such eventualities in the future. Many scholars including Adam Smith have argued that the amount of tax being paid should not be arbitrary, it should be actual. In this case, Ireland doesn't seem to know the exact amount of tax Apple is supposed to pay them. The sum of $14.5 Billion is just an estimation. It is amazing how the EU has given the country a grace period of four months to come up with the exact figures of tax Apple owe them. Again this is a major failure by the body charged with the collection of taxes in Ireland. With the high levels of technology in the 21st century, the body ought to have very efficient mechanisms for determining the amount of taxes which companies ought to pay the government. For the sake of the future, the body ought to put in place such mechanisms without any waste of time. They might be expensive, but at the end of it all, they play a significant part in ensuring that the government doesn't suffer the next loss when it comes to revenue collection. The body ought to be in the light of the reality; many organizations are not willing to pay taxes to the government, they want to fail to pay taxes and take it as an advantage to their competitors. Chris (2012) said that time of payment and the manner of payment are positive aspects in taxation which must be very transparent to the taxpayer. How Apple failed to pay tax on the right time for over a period of ten years is questionable. Who should be blamed for all this, is it the body charged with tax collection all is it Apple, the taxpayer? The answer is very simple; all the parties involved are to be blamed. First, looking at Apple, it’s a company large enough to argue that there are well knowledgeable individuals who know that the firm has an obligation of paying tax to the government of the land in which it is conducting business. How then the company fails to pay tax year in year out, it's just not understandable. Maybe the company wanted a top to make huge profits, but this is against ethics. The company needs to give this issue a closer look since it is painting an appalling image of the company in the society something which might affect the consumer trust on the company and consequently the sales of the enterprise. The body charged with tax collection should not again be excluded; it has to polish up and perfect in its obligation. Another principle by Adam Smith is that companies ought to be charged as little as possible. Governments should not take the issue of paying taxes as an advantage and overtax the taxpayers. It is against morals and ethics. Taxes ought to be affordable and very reasonable. The government ought to honor the society’s norms of fairness. A sum of $14.5 billion is not in any way a small amount bearing in mind that it is a tax. It is reasonable to argue that the tax rates of Ireland are relatively high. High taxation comes with several disadvantages. First, at the mention of a colossal sum of tax to the taxpayer, it is in itself a major demoralizer. The taxpayer morale to pay tax is lowered, and the whole activity of paying tax becomes a problem. Second, when a company pays very high taxes, their profits are significantly reduced. Reduced benefits mean a reduced pay to the employee's something which lowers their morale leading to a reduced production and consequently a company makes less or no progress at all. This means that a country needs to be very keen while setting its tax rates; not too high for the taxpayer but still enough for its self. The Republic of Ireland ought to review its tax rates guided by this principle. Most countries nowadays have special taxing rules to any foreign investor. They are useful low tax rates to attract people who can invest in their nation (Richard, 2015). This shows how important foreign investors are; they bring capital to a country and business too. The importance of entrepreneurship in a nation can not be in any way undermined bearing in mind all the benefits it has to the people starting with the creation of employment to fostering the living standards of an ordinary man in a nation. In this case, as Apple narrates its story of how it started doing business in a foreign country, Ireland, some of these benefits come out very clearly. To start with, Cork- a city in Ireland- was suffering from high levels of small economic investments and lack of employment among the people at the time Apple was setting its first factory in that city, October 1980 (Tim, 2015). After Apple had started the business, it employed a workforce of sixty people most of whom were the residents of Cork. In 2016, the country had employed over 6,000 people across Ireland. Second, when other companies saw Apple doing business in Ireland, they too saw the great opportunity that was in Ireland and came to invest in the country. This has significantly boosted the country’s economy. Therefore the Ireland government should realize the importance of foreign investors and act accordingly not to lose them. In an open letter from Apple to address this case, the company claims to be the highest tax payer in the Republic of Ireland. Being the largest taxpayer is not in itself a simple thing. It shows the economic supremacy that Apple has in the country. It means that the country can terribly lose in its economic growth. The government of Ireland must take into consideration this fact before making a decision. It should be very keen not to lose this great company which has deep roots in its country. In the same letter, the Apple claims to have received a guidance of how to comply accordingly with the paying of tax from the authorities of Ireland that deal with tax. This guidance was the same as that given to other companies doing business in Ireland. A question now arises; how comes that it’s only Apple that hasn’t complied with the payment of taxes yet the guidance is the same far all companies? Something is for sure completely wrong. It shows some element of corruption and dishonesty among the parties involved. Both Apple and the tax payment authorities of the Republic of Ireland have to seriously look into this matter and come up with a working solution; they should trace and root out those who are not performing their duties accordingly. Apple claims that at the roots of the case by EU commission, it’s not about how much the company pays taxes, but about which government authority collects the tax. It is quite disappointing that still in the 21st century with extremely high levels of civilization that such an issue is still arising not forgetting that countries in Europe are in the first world class(Malherbe, 2015). There is a very clear principle that guides multi-national companies when it comes to the issue of tax; a company should pay tax to the government of the country in which it is conducting business and making some profit(Sinclair, 2014). This is a standard and a direct principle that guides nations and international companies across the world. Someone wonders how such an issue still surfaces in Europe. The European Union should have clear guidelines which highlight such principles so as to avoid any form of controversy among nations when it comes to the issue of paying taxes. It is the lack of such guidelines that brings about this controversy. Commissions and authorities charged with the role of taxation should not take for granted such instructions; they must be well framed and written so as to avoid such conflicts as this one. A serious issue still arises about the credibility of the European Union Authority when Apple says that the Irish government doesn’t acknowledge that Apple owes them. How did the authority come to know about this if the government in question doesn’t have the same allegation? It means that it’s either the claims are false or some officials in the government have engaged themselves in a corrupt deal with the company at a question. To add on this, the authority claims that Apple had personal dealings with the government of Ireland on their taxes. Someone wonders what kind of transactions that a government can have with a company to reduce the amounts of tax the company pays. It is reasonable to argue that the government would be pressuring for more taxes instead of having deals that would reduce the tax. Unless some government officials are corrupt, the allegations by the EU authority’s allegations can be termed as baseless in law or fact as Apple puts it in their open letter. It is paramount for those following up the case to think of the issues and allegations that are made critically, this way a fair judgment can be done. The European Union seems to take the whole blame at the end of it all if the information given by Apple in their open letter is proved to be correct. It is against the laws of any nation that an outside authority or body can come to interfere with their laws, the laws governing their people. Apple claims that EU has continually pressured for a change in the Irish tax laws from the way they are at the moment to a way which they think they ought to be in their way. This is in itself very offensive; it is for sure against the rule of the land. According to Apple, this breaks the sovereignty of the European Union member states over their tax laws. This move by the EU can have very adverse effects on the countries, and many countries can’t just comply. Each state is independent whether a member of a union or not. According to Gravelle (2012), no nation in this century can allow an outside authority to formulate laws for it. If this information by Apple is correct, many member states can decide to pull out of the union. This means that the union will just collapse, and therefore the EU needs to reform and perform its duties accordingly; not to do what is outside their power. There has been a recent continuous debate where the argument is whether the corporate tax is being eroded or not. Many argue that corporate income tax, especially for foreign companies such as the case of Apple and Ireland, is being eroded; that it is unsustainable. This can in some way explain the allegations made by the European Union authority. However, research by OECD in 2013 and Jane Gravelle (2012) show otherwise. The research indicates that the high corporate income tax rate itself does not in any way raise a huge amount or income. This comes out clearly without any doubt. Even after the 2008 financial crisis, the research shows that still the corporate income tax rate never raised the amount of revenue. This is well explained this way; when corporate income tax rates decline, the business tax base drops too. Only if Apple falls under the category of those companies that are not willing to pay taxes to their host governments, can the arguments by the EU be valid? Otherwise with the right picture that Apple has portrayed over the decades not only in Ireland but also in America where in fact it pays the highest amounts of tax, the allegations by the EU remain invalid. The fact will remain; corporate tax is not in any way being eroded, most companies across the world still pay taxes to the host countries accordingly. It is worth noting that international companies add value both to their host economies and their home economies. In many instances, tax havens usually increase the value through allowing foreign businesses to reduce their taxes (Sinclair, 2015). This can be the reason behind the argument by EU that Ireland has some personal dealings with tax related issues with the Apple Company. However, the allegations become void when Ireland indicates that they have no such dealings. The country has a sole obligation of determining the state’s tax collection mechanisms. An increase in the tax burden of a multinational company ordinarily reduces the levels of the investment by the foreign company something which leads to a reduction of the engaged citizens, a reduced consumption of goods by the end user and reduced levels of innovation in the country. However, no clear research shows a reduction of the tax being paid by the foreign company means an achievement of the results as mentioned above. Ireland needs to be very careful while dealing with the issue of taxing the Apple Company bearing in mind that the company has employed over sixty thousand citizens. Conclusion The reality is that this is not a simple case of all the parties involved. It is a complicated situation that requires a careful evaluation of the information raised by the parties. Each side paints a good picture for itself and a bad one for the opponent. Without a critical and brilliant evaluation of this conflicting information, it is impossible to make a fair and wise decision which is much needed. Not forgetting the enormous economic part that the Apple Company plays in the Republic of Ireland, the EU should not give a chance for errors. A single mistake by the EU can destroy the otherwise seemingly good relationship between Ireland and Apple something which can be a major drawback towards the economy of Ireland. On the other hand, no one is sure about the credibility of the Apple Company undertaking its tax obligations accordingly. The EU is a broadly recognized union that cannot just make allegations from nowhere something which calls for a serious critical investigation and analysis of all the information available. Reference Carswell, S. (2013), ‘Capitol Hill Hears How Tax-avoiding Giants Create ‘Stateless Income,' The Irish Times. Chris Berg and Sinclair Davidson, 2015, A Submission to the Senate Inquiry into Corporate Tax Avoidance, http://www.aph.gov.au/DocumentStore.ashx?id=2abc1a97-24ca-4e68-b44c-a9c914fbd7f5&subId=303110 Clausing, K. (2012), ‘In Search of Corporate Tax Incidence,' Tax Law Review Clausing, K. (2013), ‘Who Pays the Corporate Tax in a Global Economy?’ The national tax journal. David F. Burg (2004). A World History of Tax Rebellions. Routledge publishing. Desai M. & Dharmapala, D. (2009). Corporate Tax Avoidance and Firm Value. 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