Apple tax ruling reveals questions for tax policy

Tax avoidance: more than meets the eye LBS experts say


The European Commission’s ruling that Ireland should recover up to €13bn (£11bn) from Apple in back taxes raises a number of questions on tax policy and its societal implications, according to experts from London Business School.

Ioannis Ioannou, Associate Professor of Strategy and Entrepreneurship, and Catherine Magelssen, Assistant Professor of Strategy and Entrepreneurship, London Business School made the following comments writing in Forbes.

“Taxation should be assessed in conjunction with a firm’s overall societal impacts,” says Ioannis Ioannou. “There is a strong argument to be made for recognising and rewarding, or even incentivising, socially beneficial and responsible corporate behaviours through smart tax policy.”

Ioannou notes that metrics such as environmental, social and governance (ESG) data could be incorporated into tax policy, promoting corporate transparency, responsibility and accountability.

“Discussion about tax policy (and by extension, tax avoidance) should be smarter and more comprehensive. In many respects, tax rates, as numbers, are meaningless unless the firm as a whole is taken into account, the global politics are deeply understood, and the societal impacts of a corporate are taken into account.”

Catherine Magelssen adds that the ruling raises important questions about where a firm’s value-creating activities take place:

“We are seeing conflict emerge between countries and institutions over the taxable income for multinationals. Nearly all of Apple’s R&D is conducted in the US, which implies that profits should be associated with the US, not the EU member states. Thus, a key policy question for countries is how to foster such activities by multinational firms in their local jurisdiction?”

“It is easy to lose sight of the actual worldwide taxes paid by firms,” says Magelssen. “Apple is one of the largest tax payers in the world. Between 2003 and 2014, Apple paid $63.5 billion in taxes, reflecting an average corporate effective tax rate of 26.1%. In fact, the taxes paid by Apple in 2015 alone were $19.1 billion, which is larger than the GDP of 82 different countries."

“Public discussion on tax avoidance in the case of Apple has been partial, at best. A more complete discussion is needed to generate the most beneficial societal outcomes possible.”