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Legal issues

Paradise papers and Intangibles

by Dr. Tatiana Zarubina, from IP Global Solutions , on Dec 18
So called Paradise papers, a massive trove of leaked offshore investment documents, show the tax evasion in the tax heavens. Legal opportunities or criminal actions ?
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Question:

And once more IT multinationals are in the center of the tax scandal. Is it something proper to Intangible assets?

IP Global Solutions:

It could seem so after Panama papers and the scandal with Apple in 2013 but the question is not about assets themselves. It is clear that intangibles when they are successful can create billions of dollars of benefits in a very short period and very fast push their owners to abuse tax loopholes in order to save more and more money evading taxes dues.

Question:

Could you remind us what was the Apple issue in 2013 ?

IP Global Solutions:

In August 2016, after a three-year investigation, the European Commission finds that Ireland gave an illegal tax benefit to Apple

The EC says Apple must repay Ireland taxes for the period within its remit of investigation, 2003-2013, a total of €13bn (£11.6bn) plus interest of €1bn.

Ireland and Apple launch an appeal.

Ireland says the EU is encroaching on sovereign taxation. It fears multinationals will go elsewhere.

Ireland agrees to collect the €13bn, to be held in a managed escrow account pending the appeal verdict.

Question:

And what’s new Paradise Papers reveal about Apple and other companies using Intangibles?

IP Global Solutions:

Paradise papers  reveal how the offshore tax game is played by Apple, Nike, Uber and other multinational corporations – and how gaps between differing tax codes around the world could be exploited.

Multinationals that transfer intangible assets to tax havens and adopt other aggressive avoidance strategies are costing governments around the world as much as $240 billion a year in lost tax revenue, according to a conservative estimate in 2015 by the Organization for Economic Cooperation and Development.

Question:

So what exactly did Apple do to avoid taxation in the offshore jurisdictions ?

IP Global Solutions:

After the “double Irish” loophole was shut down, in order to keep its tax rates low, Apple needed to find an offshore financial centre that would serve as the tax residency for its Irish subsidiaries. Two of them were moved to Jersey. One of them was an owner of a very valuable IP. If this company sold the intellectual property back to an Irish company, the Irish company would be able to offset the enormous cost against any future profits. And since the IP holder was registered in Jersey, the profits of the sale would not be taxed.

It appears Apple has done that.

Question:

We are talking about this old struggle between tax authorities and tax payers. Sometimes governments abuse the rules, sometimes taxpayers abuse the loopholes in their aggressive structuring. And what is the place of Intangibles in the fight?

IP Global Solutions:

These are the most valuable assets and the disputed amounts of money are enormous.

Governments around the world have challenged some of the tax structures maintained by multinationals though not always successfully. Nike triumphed over the U.S. Internal Revenue Service a year ago. A dispute between Facebook and U.S. tax authorities continues to play out in court. European regulators ruled that Ireland had granted illegal state aid by approving Apple’s tax structure.

But the fight is not only between Tax authorities and tax payers. There is another  struggle between big and powerful countries as US, Germany, France etc. and small countries without any other resource except their  preferential tax rates and special regimes for investments. My question is : what is really behind these leaks? Only the desire of justice to give lost tax revenues to the poor or it is more about to bring back  the rich multinationals and their taxes from these small countries back home in order to gain in money and power on the international scene? 

Question:

And once more IT multinationals are in the center of the tax scandal. Is it something proper to Intangible assets?

IP Global Solutions:

It could seem so after Panama papers and the scandal with Apple in 2013 but the question is not about assets themselves. It is clear that intangibles when they are successful can create billions of dollars of benefits in a very short period and very fast push their owners to abuse tax loopholes in order to save more and more money evading taxes dues.

Question:

Could you remind us what was the Apple issue in 2013 ?

IP Global Solutions:

In August 2016, after a three-year investigation,the European Commission finds that Ireland gave illigal tax benefit to Apple.

The EC says Apple must repay Ireland taxes for the period within its remit of investigation, 2003-2013, a total of €13bn (£11.6bn) plus interest of €1bn.

Ireland and Apple launched an appeal.

Ireland says the EU is encroaching on sovereign taxation. It fears multinationals will go elsewhere.

Ireland agrees to collect the €13bn, to be held in a managed escrow account pending the appeal verdict.

Question:

And what’s new Paradise Papers reveal about Apple and other companies using Intangibles?

IP Global Solutions:

Paradise papers  reveal how the offshore tax game is played by Apple, Nike, Uber and other multinational corporations – and how gaps between differing tax codes around the world could be exploited.

Multinationals that transfer intangible assets to tax havens and adopt other aggressive avoidance strategies are costing governments around the world as much as $240 billion a year in lost tax revenue, according to a conservative estimate in 2015 by the Organization for Economic Cooperation and Development.

Question:

So what exactly did Apple do to avoid taxation in the offshore jurisdictions ?

IP Global Solutions:

After the “double Irish” loophole was shut down, in order to keep its tax rates low, Apple needed to find an offshore financial centre that would serve as the tax residency for its Irish subsidiaries. Two of them were moved to Jersey. One of them was an owner of a very valuable IP. If this company sold the intellectual property back to an Irish company, the Irish company would be able to offset the enormous cost against any future profits. And since the IP holder was registered in Jersey, the profits of the sale would not be taxed.

It appears Apple has done that.

Question:

We are talking about this old struggle between tax authorities and tax payers. Sometimes governments abuse the rules, sometimes taxpayers abuse the loopholes in their aggressive structuring. And what is the place of Intangibles in the fight?

IP Global Solutions:

These are the most valuable assets and the disputed amounts of money are enormous.

Governments around the world have challenged some of the tax structures maintained by multinationals though not always successfully. Nike triumphed over the U.S. Internal Revenue Service a year ago. A dispute between Facebook and U.S. tax authorities continues to play out in court. European regulators ruled that Ireland had granted illegal state aid by approving Apple’s tax structure.

But the fight is not only between Tax authorities and tax payers. There is another  struggle between big and powerful countries as US, Germany, France etc. and small countries without any other resource except their  preferential tax rates and special regimes for investments. My question is : what is really behind these leaks? Only the desire of justice to give lost tax revenues to the poor or it is more about to bring back  the rich multinationals and their taxes from these small countries back home in order to gain in money and power on the international scene? 


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