Taxes, as the saying goes, are one of only two certainties in life. This part of the adage applies just as much to businesses as it does to individuals. (The extent to which the other part of the adage—“death”—applies to businesses is a question for another day.) Starting and operating a business requires a careful consideration of tax-related consequences, as well as ways to minimize tax obligations. The tech company Apple, based in Silicon Valley but operating all over the world, has recently been the subject of a dispute over tax benefits it has received from the government of Ireland. While the nature of this dispute might not be applicable to most businesses that are smaller than Apple, it offers a demonstration of how businesses obtain tax benefits from various governments.
Corporations, partnerships, and other types of business entities must pay income tax to the federal government and many state governments, along with various other types of taxes, such as sales tax and payroll tax. Tax planning can include not only preparing for future tax obligations but also minimizing those obligations within the boundaries of state and federal tax regulations. A business might be able to take advantage of a “tax loophole,” and it might also be able to obtain tax benefits or concessions directly from a government.
Perhaps the most common way for both individuals and businesses to reduce their tax bill is by reducing their amount of “taxable” income. While they could do this simply by earning less money, the preferred method is to take various deductions, such as business operations and payroll expenses. Their taxable income equals their gross annual income minus all lawful deductions.
Other tax-saving methods include tax exemptions, in which some part of a business’ income is exempt from taxation altogether, or tax credits, which reduce the final amount of tax owed for a given tax year. Tax exemptions and credits are available for various types of business activities—too many to list here—but it is also possible for a government, such as a city, to grant a tax exemption or other tax benefit to a specific company for a specific activity. This typically occurs as an incentive to encourage a business to invest in an area, such as by building a facility that will bring new jobs.
The dispute involving Apple began in 2014, when the European Commission (EC), the executive body of the European Union (EU), began investigating tax benefits given to the company by the government of Ireland since about 1991. As an EU member, Ireland is bound by tax regulations that reportedly prohibit member nations from giving tax benefits to individual businesses. The EC identified two “tax rulings” by the Irish government that “substantially and artificially lowered the tax paid by Apple in Ireland since 1991.” It essentially ordered Ireland to recover € 13 billion, or about $14.2 billion, from Apple.
The ruling has been controversial in the U.S., with the U.S. Treasury Department calling it “contrary to well-established legal principles.” While the ruling seems to differ significantly from U.S. tax law, it bears some similarity to antitrust law. The EC held that Ireland’s tax benefits are unlawful under EU regulations because of the “significant advantage” they give to Apple over other companies.
For the past four decades, tax law attorney James G. Schwartz has advocated for the rights and interests of Bay Area businesses, business owners, and entrepreneurs. Contact us today online or at (925) 463-1073 today to schedule an initial confidential consultation with a member of our skilled and experienced team.
More Blog Posts:
IRS Counsel’s Memorandum Could Have Important Implications for S Corporation Shareholders, Pleasanton Business & Commercial Law Blog, February 27, 2015
Shareholder in S Corporation Must Pay Tax Despite Exclusion from Management, Pleasanton Business & Commercial Law Blog, June 16, 2014
Accounting firm reaches deal with government in tax fraud case, Pleasanton Business & Commercial Law Blog, June 26, 2012