On Wednesday, the European Commission (EC) upped the ante in their battle to force companies to pay billions in taxes as a court in Spain backed the collection orders. It is expected that the decision will set the stage for the European Court of Justice to review the matter and deliver a final verdict on the unpaid tax bills of companies such as Apple, Facebook, and even Anheuser-Busch InBev SA.
The question is whether these companies can use their registration in low-tax countries such as Ireland and Luxembourg to skirt taxes in more expensive jurisdictions. While theses structures has been used by companies in Europe for years, they have come under scrutiny as governments seek new sources of tax revenue.
According to Professor Raymond H.C. Luja, who specializes in comparative tax law, the decision ‘clarifies the rules of the game’ in Europe. As the court ruled that regulators were not targeting any one company rather they were seeking to clarify the understanding of rules which were being used to exploit existing tax laws in the common market.
For Apple’s part, they have viewed attempts by the EC to force back tax claims as a sort of crusade against the company. There is some good reason for this claim, as successful enforcement of the claim would result in a $13 billion tax bill.
While yesterday’s ruling is a breakthrough, it is highly likely that the decision will be appealed to the European Court of Justice. As such, the final verdict on the matter could take six months or longer to decide. From there, companies would seek to negotiate settlements with the EC and there would also be calls to amend or enact new legislation by the European Parliament and the parliaments of the various member states.
This could ultimately lead to long-term tax breaks based on fines and concessions based on future sales. In addition, companies might be forced to break up the complicated structures they are currently using in the EU to offset tax liabilities. These include registering holding companies in low-tax countries and setting up online sales though these jurisdictions only.
However, there is a cost to managing the myriad of holding companies used by multinationals in Europe. As such, any move to clarify the tax codes would also make it easier for companies to set up structures which mitigate taxes while remaining within the law.
Shares of Apple were trading up by the lunch break on Wednesday at $117.08.