Students of international affairs, familiar with the Westphalian system, have been taught to see states as the paramount and only significant actors in the world, this is, however, not the case. Corporations, who operate globally, and with few restrictions, are also major players, in many cases wealthier and more influential than many states. Large corporations have ceased to be primarily national entities (excepting small and medium companies). It is interesting to see the confusion involved in governments supporting “national” companies at trade exhibitions, which are actually parts of larger foreign-owned groups. For example, the UK Department of Trade and Industry regularly supports the business of Thales (French-owned), and Selex (Italian-owned). The growing important of the global supply chain, which has created dense networks of suppliers and integrators, has eroded national control over production, even of strategically important military systems.

Corporations have also learnt that lobbying of national assemblies, particularly the US Congress, is a cost effective way of enhancing their profitability. As corporations are motivated by the need to maximize profits, it is on their interests to reduce or remove regulations, particularly those which seek to impose the full environmental costs of manufacturing on the producer, by making them pay in full for clearing up pollution, compensating those affected by their operations and products, including employees affected by poor working conditions and a lack of safety protection.

The development of Internet-centric businesses, such as Amazon, Apple and Google, which use multiple business centres, have allowed these businesses to avoid most of their tax liabilities. There have been moves to boycott Amazon in the UK, after it was revealed that the company paid just £4.2m in UK tax in 2013, despite selling goods worth £4.3bn, it’s tax bill only amounted to 0.1% of Amazon’s UK revenues.[1]

Offshore “tax-free” zones and “tax breaks” offered by countries like Ireland and Luxembourg have allowed business like Amazon, and Apple to avoid virtually all European taxation. Complex intra-group transfers have enabled profits to be transferred with the minimum of tax loss.

Certain countries have also permitted generous tax arrangements. As Forbes noted, “if an Irish subsidiary is controlled by managers outside of the company like one in a tax-haven such as Bermuda or the Isle of Man, certain kinds of income can escape tax altogether – so long as it remains out of arm’s length of taxing authorities. Ireland’s tax laws make this easy and Irish disclosure laws make those assets tricky to track down.” Irish law has now changed and new arrangements of this type will not be permitted, as Forbes also noted, “However, the loss of the ‘Double Irish’ means that the 2% tax rate paid by Apple may become a thing of the past – at least in Ireland.”[2] A 2013 U.S. Senate report said of Apple’s tax arrangements, “the company operates in numerous countries around the world, but it does not transfer intellectual property rights to each region or country where it conducts business. Instead, the transfer of economic rights is confined to Ireland alone, where the company enjoys an extremely low tax rate.”[3]

© Andrew Palmer, 2016, not to be reproduced

[1] Juliette Garside – Amazon UK boycott urged after retailer pays just £4.2m in tax, The Guardian, 9 May 2014, http://www.theguardian.com/business/2014/may/09/margaret-hodge-urges-boycott-amazon-uk-tax-starbucks

[2] Erb, Kelly Phillips – “Ireland Declares ‘Double Irish’ Tax Scheme Dead”, Forbes, 15 October 2014, http://www.forbes.com/sites/kellyphillipserb/2014/10/15/ireland-declares-double-irish-tax-scheme-dead/ accessed 3 October 2015

[3] OFFSHORE PROFIT SHIFTING AND THE U.S TAX CODE—PART 2 (APPLE INC.), PERMANENT SUBCOMMITTEE ON INVESTIGATIONS OF THE COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS, UNITED STATES SENATE, 21 May 2013, quoted by Alanna Petroff – “EU Slams Apple’s Irish Tax deal”, CNN Money, 30 September 2014, http://money.cnn.com/2014/09/30/news/companies/apple-europe-tax/ accessed 3 October 2015