December 7, 2016
Washington offered Boeing prohibited tax breaks, says EU panel
A multinational World Trade Organization panel recently found that Washington State offered aviation company Boeing nearly $9 billion in “prohibited” tax breaks, benefits and subsidies to keep production of the massive 777x aircraft within its borders. The WTO panel investigated the arrangement as part of an ongoing business dispute between Boeing and fellow aviation giant Airbus. The feud began back in 2004, and the home countries of these avionics pioneers have become embroiled in the fighting as well. Relations between the 28-country European Union and the U.S. are tense where these companies are concerned, and competition for manufacturing rights, jobs, tax subsidies, development and distribution is fierce.
The WTO panel investigated the arrangement offered by officials in Washington due to allegations that the subsidy and tax benefit plan, touted as an incentive to keep manufacturing jobs within the state, unfairly excluded foreign competition for aircraft production (and the subsequent economic benefits that come along with such manufacturing, including jobs, factory construction, infrastructure improvements and more). The WTO committee disallowed nearly $6 billion in proffered tax cuts, subsidies and credits that would have benefited Boeing between 2024 and 2040, giving the U.S. government only a few short months to address the situation.
Similarities to the Apple tax saga?
The allegations of unfair tax arrangements at issue here brings to mind another recent international incident involving a corporate giant’s tax strategies: that of Apple. In that case, the EU tax court found that the company’s Irish tax breaks and benefits were actually illegal tax avoidance and evasion. Apple was ordered to repay over $14 billion in unfairly reported profits and subsidies. Such illegal tax evasion can also, of course, lead to criminal charges, jail time, asset forfeiture and civil penalties as well as repayment of ill-gotten gains.
Both these cases make something readily apparent: any tax benefits, including subsidies, breaks, lower tax rates, credits or any other form of lessened tax burden, must be done precisely and exactingly by the proverbial book. Failure to thoroughly research the legality and propriety of any tax reduction arrangement (be it one set up by your business or offered by a municipality or agency as part of an economic package) can result not only in loss of the tax benefits themselves, but in your company being on the hook for millions – or, as in the case of both Boeing and Apple, billions – of dollars. Before making any changes to your company’s tax strategy, be sure you have sought the counsel of a qualified and experienced tax attorney.