The state of global capitalism post Brexit, Part 1

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31/08/2016 by socialistfight

By Gerry Downing

Image result for Apple Ireland Tax 13 billion images

EU competition commissioner Margrethe Vestager announces the order that Apple pay €13 billion to Ireland

The weak recovery from the 2008 economic collapse has already petered out in Europe and China and the recovery in the US is a parasitic one; it is highly dependent on the dollarization of world trade and consequent benefits accruing to the US from that and from the domination of the world by the US transnational corporations on the back of constant wars and threats of war by the USA. Anglo-American imperialism is more clearly defined now post Brexit in its opposition to European Franco-German imperialism. The USA did not want Brexit because they knew it would mean a significant loss of influence for them on the continent of Europe. And the case of the €13 billion tax bill the EU has now sent to the Apple Corporation on behalf of a reluctant Ireland has highlighted that very sharply. Remember the Apple judgement may take years to settle legally but the ill-willed dice have been cast.

Back in May 2013 there was apparent consensus on taxing major corporations but by August 2016 relations between the EU and the US have deteriorated rapidly and Brexit has exacerbated this situation. Events seem to take on a logic of their own beyond the control of human agency.  Even David Cameron signed up to the Asia Infrastructure Investment Bank floated by China, in defiance of US strongly expressed wishes. In March 2015 the UK, Germany, France, Italy, Australia and South Korea joined, much to the annoyance of the USA. Even Canada joined at the end of August 2016.

New British Prime Minister Theresa May’s delay in approving the Hinkley Point nuclear plant because China has a 33% stake also demonstrates the post Brexit orientation of Britain to the US.  David Cameron and George Osborne strongly supported the Hinkley Point deal and hailed it as the start of a “golden decade” in which Britain would be China’s “best partner in the West”.

If the US retaliates against the EU Apple Ireland judgement what price the sanctions on Russia, which have cost Europe far more than they have cost the US? The US demanded and got the sanctions in retaliation against Putin for events in Ukraine. And who has forgotten Victoria Nuland’s “fuck the EU” and NSA’s hacking of Angela Merkel’s personal mobile phone calls, to mention just a few of the gross insults arrogantly visited on the EU by the USA in recent times? Certainly nor Germany.

 Apple and Ireland

It is now very clear that the outcome of the British Referendum on 23 July marked a new stage in the crisis of global capitalism. Back in 2013 there seemed to be a global consensus that large transnational corporations were using all sorts of legal loopholes and dodgy manoeuvres to avoid paying their taxes. Forbes staff writer Connie Guglielmo reported in May 20, 2013 in an article called The Little Black Book of billionaire Secrets, Apple Used Loopholes To Skip Paying U.S. Taxes On $44 billion In Offshore Income, Senate Committee Claims:

Apple relied on a “complex web of offshore entities” and U.S. tax loopholes to avoid paying billions of dollars in U.S. taxes on $44 billion in offshore income over the past four years, according to excerpts from a Senate subcommittee report to be released tomorrow as Apple CEO Tim Cook testifies on the company’s overseas operations.

The maker of iPhones and iPads used at least three foreign subsidiaries that it claims are not “tax resident in any nation” to help it avoid paying billions in “otherwise taxable offshore income,” the Senate Permanent Subcommittee on Investigations said in a statement today. The bi-partisan committee, headed by Carl Levin [D-Mich.] and John McCain [R-Ariz.] plans to issue a 40-page memorandum with findings and recommendations.

“Apple wasn’t satisfied with shifting its profits to a low-tax offshore tax haven,” Sen. Levin said in today’s statement. “Apple sought the Holy Grail of tax avoidance. It has created offshore entities holding tens of billions of dollars, while claiming to be tax resident nowhere. We intend to highlight that gimmick and other Apple offshore tax avoidance tactics so that American working families who pay their share of taxes understand how offshore tax loopholes raise their tax burden, add to the federal deficit and ought to be closed.” [1]

Of course Ireland was the main country referred to above. EU Competition Commissioner Margrethe Vestager has revealed on 30 August that the EU has judged that Apple has illegally avoided paying €13 billion (£11 billion, $14.5 billion) plus interest (€6 billion by some estimates) to the Irish revenue commissioners. With the added interest this is the worst case scenario of €19 billion predicted by investment bank JP Morgan and is 190 times greater than the hoped for €100 million of the Irish government.

The figure was arrived at by using Ireland’s ultra-low Corporate Tax rate of 12.5%. In the United States the Corporate tax rate is 38.90%, in China it is 25.00%, Japan 32.26%, Germany 29.65%, United Kingdom 20.00%, India 34.3% and France 34.30%. The average of the the 33 most developed countries of the OECD, weighted by country GDP,  is 28.3%. So in reality Apple alone has avoided over €40 billion in Corporation tax, just part of the direct subsidy the rest of the world pays to the US transnational corporations.

Because the tax was avoided on Apple sales in the EU, the Middle East, Africa and India these countries naturally feel it is mainly their tax, not Ireland’s and if these claims succeed then clearly Apple would be faced with the far higher bill than €13 billion; €40 billion+. And even if that claim failed once Ireland got the €13 billion it would be a relatively simple task to relieve the Irish tax man of the burden they never wanted in the first place. Apple paid corporate tax of 1% to Ireland on its European profits in 2003 and managed to reduce even that to 0.005% in 2014 by the stratagem of the bogus head office outlined by Vestager above.

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Severe threats against the EU from the US failed; a letter from US treasury chief Jacob Lew to EU Commission president Jean-Claude Junker warned him off intervening in the affairs of US companies. Vestager revealed that the vast majority of Apple’s profits from its sales in the EU went to a head office that “only existed on paper.” This head office “has no employees, it has no premises, and it has no real activities,” she said. “The head office was subject to no tax in Ireland or elsewhere.” This is massive fraud in law as the EU Commission has ruled. Notable there is no proposal to prosecute those who have broken this law, merely a proposal to stop them doing it in future and make them return their ill-gotten gains.

Neither does the Irish government want the €13 billion but will mount a legal challenge against having to receive it, as will Apple at having to give it. The money will be held in a holding account pending the outcome of the legal case. Unspecified retaliatory measures are also threatened by the US in a White Paper in late August, just a week before the judgement which described any adverse outcome which would transfer tax take from the US to the EU as “deeply troubling”. It predicted this would have a “chilling effect” on US-EU cross border investments; the EU were allegedly “undermining the international consensus on tax” etc. As the research and development takes place in the US then US transnational corporations should not be made to pay tax on overseas profits is the ridiculous arguments used in defence of this robbery.

Image result for Apple Ireland Tax 13 billion images

The response of the US to the major rebuff from the EU

The Irish government does not want the €13 billion because it would undermine a large part of the Irish economic strategy over decades under successive governments; acting as a tax haven for large US corporations, some of which are registered in Ireland and so are Irish companies only in legal terms. Companies like Alphabet Inc.’s Google and Facebook Inc. have their HQs in Ireland. More than 700 U.S. companies have units there, which employ 140,000 people, according to the American Chamber of Commerce in Ireland. [2]

More, like Apple, use the willingness of the government to find ways to avoid even the minimal corporation tax of 12.5%, for the provision of some 6,000 jobs in Cork, Ireland’s second city on the south coast. The US, anticipating this outcome, has begun to renegotiate their tax relationship with Ireland and a number of other EU members independently of the EU Commission, obviously in an attempt to break up the EU as an economic rival. [3]

Dara Doyle of Bloomberg spells out the economic significance of the judgement as a culmination of previous cases:

The Apple case may set a new standard for collections among a recent group of European investigations into so-called “state aid” provisions to corporations. The commission in January ordered Belgium to recover about 700 million euros in what it called illegal tax breaks from at least 35 companies, including Anheuser-Busch InBev NV and BP Plc. Last year, Starbucks Corp. was ordered to pay 30 million euros in back taxes to the Dutch government. The EU also has open state-aid investigations into Luxembourg’s tax agreements with Amazon.com Inc. and McDonald’s Corp.

Commission-ordered repayments could wind up costing American taxpayers under U.S. tax law, while benefiting EU taxpayers, the U.S. has said. That’s because multinational corporations with large foreign operations, like Apple, are allowed to claim a credit against their U.S. tax bills for any foreign taxes paid. The offset reduces such companies’ U.S. tax payments. [4]

But the US has an obvious way to massively increase its tax take from its major corporations. But, like Ireland, it is strangely reluctant to benefit from this great windfall. Apple has over $230 billion cash in offshore accounts which it refuses to repatriate to the US because it would have to pay up to 40% tax on it, $92 billion. Apple, and all the rest in their situation, are pushing hard to avoid paying this level of tax but the US Inland Revenue has the option to impose a tax without repatriation, a step it is very reluctant to take.

The last US Tax Reform Act was back in 1986. Sponsored by the Democrats it is popularly referred to as the second of the two “Reagan tax cuts”. All US politicians in the two big imperialist parties get huge donations from these sources. In this election year Hillary Clinton is a far greater recipient of the largess of these transnational corporations than Donald Trump. So the crocodile tears of the Democrat Levin the Republican McCain about the problems of American working families will produce little advance in taxing major US transnational corporations in the immediate future, still less any hope for funding a proper health service or unemployment benefits.

Clearly the €13 billion is peanuts for Apple, less than three months’ profits, but $92 billion is a different order of magnitude. Nor are Apple alone in this practice. The top 50 US companies hold over $1.4 trillion offshore with General Electric, Microsoft, Pfizer and IBM constituting the rest of the top five U.S. companies with huge offshore accounts. That of all US corporations now amounts to $2 trillion, according to USA Today on 31 August, 40% of which would yield some $800 billion for the Inland Revenue.

And, even though they won’t pay the US Inland Revenue taxes on these profits, the US are their champions in ensuring they pay little or no taxes in the countries where the profits are earned, as they are kindly allowed to offset taxes paid abroad against taxes paid at home, as we saw above. Ultimately the declining global hegemon needs to rob its world rivals as well as the semi-colonial world via these transnational corporations or concede their very lucrative role as the world’s policeman/robber.

In Britain Google, Starbucks and Amazon have been in the frame for tax avoidance because they produce figures that ‘prove’ they earn tiny profits here and some even claim losses. After a big public row Starbucks has agreed to make a one-off payment to the taxman to tide them over until the brouhaha dies down, without, however, altering their practices in any way. Theresa May, the new Tory Prime Minister, has promised legislation on this. We remain sceptical on any really favourable outcome on this.

 The Transatlantic Trade and Investment Partnership

In the midst of the furore a very significant item of news appeared. The TTIP is dead in the water. On Monday 29 August it was reported that Angela Merkel’s deputy economics minister Sigmar Gabriel said that after 14 rounds of talks no agreement was forthcoming on any of the 27 TTIP chapters of the proposed deal after 14 rounds of behind-closed-doors bargaining. “In my opinion the negotiations with the United States have de-facto failed, even though nobody is really admitting it” he said.  The French president Francois Hollande confirmed the debacle the following day: “The negotiations are bogged down, positions have not been respected, it’s clearly unbalanced.”

Again it is clear that the EU feel that the US are demanding what they are not prepared to concede. It is widely understood that the US has escaped the recession of 2008, albeit weakly and with little hope for escaping a new recession in the next immediate period, at the expense of its rivals by using its domination of the global finance markets bolstered by the threat of the weight of its military superiority.

On Monday 29th the Communist Party of Britain’s Morning Star was celebrating this ‘victory’. They quote Global Justice Now spokesman Kevin Smith as saying:

“The capitulation is testament to the hundreds of thousands of people who took to the streets to protest against TTIP, the three million people who signed a petition calling for it to be scrapped, and the huge coalition of civil society groups, trade unions and activists who came together to stop it.”

It really is criminally short sighted to celebrate the impending abandonment of TTIP by imperialism (not ‘defeat’) without recognising what is about to replace it. If TTIP fails and the even more important Trans Pacific Partnership fails – both are now rejected by both major US Presidential candidates – then the consequences will be dire if they fall to the right. Neo-liberal globalisation is under attack from the right, from the poisonous perspective of economic nationalism and protectionism that Donald Trump, Nigel Farage, Marine Le Pen and others have made respectable.

Those, like the Morning Star, who failed to see this in the Brexit Referendum and fail to see it in every major capitalist country now, are adherents of Popular Frontist class collaboration and are blind to the dangers of WWIII posed in these developments. The Popular Front was the policy of Stalin from 1935 which rejected the class struggle in favour of class collaboration which forbade strikes and occupations so as not to alienate their middle class allies; Liberal politicians, radical priests and vicars etc. It was the main ideological barrier that prevented revolution in France and Spain before WWII and made that war inevitable consequent on the defeats of those working classes.

Ominously the US trade union federations are well-neigh uncritical supporters of their own ruling class in defence of domestic jobs versus ‘outsourcing’. However, the majority of the British trade unions opposed Brexit, recognising its backward nationalist and chauvinist anti-immigrant dynamic, the Sanders surge in the Democrats has petered out without any indication that his disgruntled supporters will break for the Democrat milieu and form a mass Labor party but the Corbyn surge in Britain is still uncontained by the combined efforts of the British ruling class, the right wing Labour traitor MP in parliament and Zionism and their allied mass media of press and television.

Obviously the global tensions between the EU and the US, between Franco-German imperialism and Anglo-American imperialism essentially, are part of the global struggle by US imperialism to retain its position as the global hegemon and this is manifest in the wars in the Middle East, in the conflict Ukraine, in the South China Sea and in the Americas. It is in the latter that the US are having their greatest success, removing Dilma Rousseff from the presidency of Brazil in the coup/impeachment trial orchestrated by its close allies there and moving ever closer to the overthrow of the government in Venezuela all in the context of the rapprochement with the Cuban deformed workers’ state. This will be subject of the next article.

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Notes

[1] Connie Guglielmo, Forbes Staff, Apple Used Loopholes To Skip Paying U.S. Taxes On $44 billion In Offshore Income, Senate Committee Claims, http://www.forbes.com/sites/connieguglielmo/2013/05/20/apple-used-loopholes-to-skip-paying-44-billion-in-u-s-taxes-senate-committee-claims/#4f0ef2af2971

[2] Dara Doyle and Stephanie Bodoni Aug 30, 2016, The Washington Post with Bloomberg, Apple Ordered to Pay Up to $14.5 Billion in EU Tax Clampdown, http://washpost.bloomberg.com/Story?docId=1376-OA5T296K50Y201-4TTU51KS7R2BOI8IQBQQRMU0B4

[3] This information above was largely gleaned from an article by Brian Keegan in the Irish Times Mon, Aug 29, 2016, Ireland risks being trampled in US/EU corporate tax fight, Opinion: US White Paper ratchets up pressure on EU over taxing multinationals, http://www.irishtimes.com/business/economy/ireland-risks-being-trampled-in-us-eu-corporate-tax-fight-1.2771081

[4]  Dara Doyle, Apple’s Day of Reckoning Comes With Billion-Euro Tax Risk, Aug 30, 2016, http://washpost.bloomberg.com/Story?docId=1376-OCP4IE6K50Y701-5JC7DGDN31EA65N2FHCSEDVRUT

 

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