The silver lining of this week's tax ruling against Apple is that it may finally spur U.S. legislators to reform the country's corporate tax code in order to protect American companies and keep corporate assets in the U.S.
The European Commission's $14.5 billion tax ruling against Apple is as unprecedented in its logic as it is audacious in its scope. It doesn't find that Apple broke any tax law. Rather it concludes that Apple's low tax burden in Ireland, where the company houses its international headquarters and employs some 6,000 people, amounts to illegal "state aid," which is a violation of European Union antitrust regulations.
Apple officials responded that the low tax rate that the commission said the company paid was "completely made up" and that it was trying to "rewrite Apple's history in Europe." It pointed to the fact it paid $400 million in taxes to Ireland in 2014, making it the country's biggest taxpayer. (Apple is also the biggest taxpayer in the U.S. and the world.)
According to Apple CEO Tim Cook: The commission "is effectively proposing to replace Irish tax laws with a view of what the commission thinks the law should have been… Using the commission's theory, every company in Ireland and across Europe is suddenly at risk of being subjected to taxes under laws that never existed."
Apple played by the rules. But now EU bureaucrats are trying to change them after the game in order to achieve a naked tax grab for political purposes. The result will be a chilling of economic activity, investment, and job creation in the European Union. No wonder Britain wanted to leave.
The U.S. should act to protect its companies by reforming its outdated and uncompetitive corporate tax code. Moving to a territorial tax system that only taxes U.S.-based earnings would cause U.S. multinational companies to bring home their estimated $2.4 trillion of stranded foreign earnings — eliminating the treasure chest that EU regulators are targeting with their tax decisions.