CORPORATE TAX BREAKS

Apple, Ireland face criticism

There seems to be no end to the resourcefulness of multinational companies when it comes to minimizing taxes — or of countries that help them do so. The latest evidence is a preliminary finding by the European Commission that Ireland provided extravagant tax benefits to Apple that appear to have allowed the company to reduce its tax liability, possibly by billions of dollars since 1991.

In a disturbing 21-page letter made public on Tuesday, the European commissioner for competition, Joaquín Almunia, said that the Irish government had provided state aid to Apple in violation of a European Union treaty. The commission could try to use the finding, which Ireland and Apple dispute, to force the country to recover back taxes.

The letter is the latest document shedding light on corporate tax avoidance. Last year, for example, a Senate subcommittee published a report that showed Apple paid an effective corporate tax rate of just 2 percent in Ireland. Earlier, the same committee reported that other big companies such as Microsoft and Hewlett-Packard had also used aggressive tax avoidance tactics that deprived the federal government of needed revenue, forcing a greater share of the tax burden to fall on individuals.

In his letter, Almunia says that Irish tax officials and Apple executives negotiated tax rulings in 1991 and 2007 that limited how much tax was paid by two of Apple's Irish subsidiaries. Instead of following a transparent method to determine the taxes that one of those companies owed, the 1991 ruling "reverse engineered" a way to come up with a taxable income figure that fell between $28 million and $38 million — a range, the letter said, that was without "any economic basis." In 2007, Ireland began using a different approach but did not explain how it came up with the new method.

One document submitted by the Irish government to the commission indicates that it may have granted favorable treatment to Apple because it was the largest employer in the city of Cork.

Whatever Ireland's rationale, lawmakers around the world have not cracked down on — and in some cases encouraged — aggressive tax avoidance by big corporations. That is why the European Commission's letter, which shows some overdue resolve, is important.

FROM AN EDITORIAL IN THE NEW YORK TIMES