Ireland faces questions on fruitful Apple tax deal

Business Opinion: answers could undermine Government’s defence of 12.5 per cent corporate tax rate

The change in tax accounting in 2009 raises a question over the Government’s claim that Apple has been using the “stateless company” wheeze for years rather than having a special deal. Photograph: James Best Jr./The New York Times

The change in tax accounting in 2009 raises a question over the Government’s claim that Apple has been using the “stateless company” wheeze for years rather than having a special deal. Photograph: James Best Jr./The New York Times

Mon, Mar 10, 2014, 01:00

The revelation that Apple paid just $36 million tax on $7.11 billion worth of profits funnelled through an Irish company sounds like old news and the Government has done its best to characterise it as such over the past few days. It is however much more than old news. The additional detail that is contained in the documents obtained by this newspaper challenge the narrative at the heart of the rearguard action fought by the Government since the news of Apple’s extraordinary efficient tax planning surfaced last year.

The claim by Apple that it had a special arrangement with the Irish Government that allowed it pay less than the statutory rate of 12.5 per cent corporation tax caused consternation here and abroad.

It contradicted what the Government had been telling its European partners on and off since 2008 when the our economic difficulties shone an unwelcome light on the low rate of tax on corporations here.

The Irish position has consistently been that while our rate is very low, it is fixed by statute and is very transparent. Other countries might have higher rates, they argued, but their effective rates in many cases were even lower than the Irish one becuase of various reliefs and concessions. Various studies have been produced over the years to back up this assertion.

What Apple said last year directly contradicted this. If what they told the US senate was correct then the Irish Government had been less than truthful and you could enter into arrangements with the Irish authorities to achieve an even lower effective rate than 12.5 per cent.

Apple have never withdrawn this assertion, but at the same time they have stood back and let the Government kick up as much dust as they can around the issue. The counter narrative advanced by the Government was that there is no special deal but Apple instead availed of a loophole in Irish law that allowed companies to be Irish registered but not Irish domiciled. This quirk of Irish tax law opened the door to low tax heaven we were told.

The loophole was closed in the Budget and the Government seems to have got the “no special deals” narrative back on track. Until last week that was.


Undermine the defence
The accounts for one of these stateless Apple companies, Apple Sales International, raise a number of questions. The answers to which threaten to undermine the Government’s carefully reconstructed defence of the 12.5 per cent rate.

The accounts obtained by The Irish Times cover the years from 2004 to 2009 but the only year in which Apple Sales International’s non-resident status is explicitly stated is in the 2009 accounts. In that year it calculated the tax it owed by reference to a blend of the rates in the countries it operated in. It then reconciled this to the [much lower] actual amount paid by reference to “income taxed at lower rates”. In all the previous years Apple calculated the tax due with reference to the Irish 12.5 per cent rate. The actual amount paid is again reconciled to the [much smaller] amount paid by reference to “income taxed at lower rates”.

No reason is given for the change in tax accounting in 2009 but it does raise a question over the Government’s claim that Apple has been using the “stateless company” wheeze for years and years rather than having a special deal.

But it’s Apple’s ability to slash its Irish corporation tax bill in the years from 2004 to 2009 by reference to “income taxed at lower rates” which is far more problematical. It should have paid $890 million based at the 12.5 per cent rate but instead paid $36 million, which is much closer to the 2 per cent rate it told Congress that it had agreed with Ireland.

Is this then the special deal that Apple told the US Congress existed but the Government denies? In the absence of any clarification it is a basis for legitimate suspicion and potentially a fatal hole in the “no special deals ” claim. Based on its past form Apple is unlikely to want to provide any clarity and given its has more cash in the bank than Ireland has sovereign debt, it’s hard to see the Government putting too much pressure on them.

This puts them in a very difficult position because the EU and the European Commission – who seem to have bought the no special deal line – may be wondering quite rightly if they have been sold a pup. They no doubt would like to know what “income taxed at lower rates” means as should anyone else paying the full statutory rate of 12.5 per cent corporation tax.

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