The ongoing battle between Apple Inc. and the EU once again throws light on the complicated business of taxing companies that straddle the world. EU authorities have asked Ireland to claw back $14.5 billion of tax from the technology company. Apple CEO Tim Cook has described the decision as “political crap”. He has threatened to transfer an undisclosed part of the $215 billion cash hoard Apple holds outside the US back to its home country. US firms collectively hold around $2 trillion of cash abroad to escape higher tax rates—more than the forex holdings of any central bank other than China’s.
Large multinationals have helped integrate the global economy through supply chains that move products seamlessly across borders. They have been excellent vehicles of technology transfer. Countries offer them tax sops to create jobs. Transfer pricing is often used to report profits in countries where tax rates are more attractive. The Apple case once more highlights some of these grey areas.