Why Apple's loss is the world's gain

[Playboy™]

Opinion

How exactly did Apple create a company with no employees, no office and no country of registry? Why did Ireland rule not once, but twice, that such a setup was legal? Why doesn't Ireland want to collect the money the European Commission says it should have received in taxes up to 2014?

But beyond these particular questions, there's a much bigger and more important dynamic playing out. Margrethe Vestager, the EC's combative competition commissioner who handed down the ruling on Tuesday, is demonstrating there's only one way to roll back multinational companies' growing exploitation of hugely complex tax avoidance schemes, dubbed "the dark side of globalization" by Nobel prize-winning economist Joseph Stiglitz. And that is for the really big political blocs to act in concert.

United, they can stand against the financial engineering that shifts billions of dollars out of taxation's reach. If they're divided against each other, tax rates and receipts will fall, and government deficits will grow, prompting more austerity even as the big companies grow perplexingly richer.

Of course that's not how the big companies want to see it. Apple's chief executive Tim Cook released an open letter on Tuesday, complaining that Apple is "the largest taxpayer in Ireland, the largest taxpayer in the United States, and the largest taxpayer in the world." Ireland's tax authorities ruled not once but twice that Apple's evanescent company, untied to any location, was legal. The EC, Cook says, "has launched an effort to rewrite Apple's history in Europe, ignore Ireland's tax laws and upend the international tax system in the process." Apple and the Irish government say they will appeal the ruling.

The trouble is that when companies can use financial engineering to pick and choose precisely where they're taxed, it creates a financial black hole in two ways. First, you can't see quite where the money has gone once it enters such a setup; finding out what Apple does with its revenues is a challenge for anyone who is not well-versed in the language and methods of tax arrangements, with revenues appearing to flirt back and forth between near-identical corporate entities. And second, while in the beginning it is small islands such as Bermuda and the Channel Islands that compete to be the tax haven of choice, over time the financial gravity pulls in larger countries such as Ireland.