Ireland may yet get €13bn from Apple - but for now the State is back in the firing line

The 43-year story of Apple in Ireland tells a lot about the State’s long relationship with American multinationals. Ireland’s economic model has been founded on the mutual benefits of that relationship, as the State set itself up as a liberal, low-tax, educated bridge between the United States and Europe. But in the decade since the European Commission started to investigate Apple’s tax arrangements here, how much tax companies pay and where they pay it has become disputed territory.

Now Ireland is back in the spotlight as the issue of whether the State should get €13 billion in back tax from the giant company is firmly once again in play. The European Court of Justice (ECJ) may ask its lower court to look again at its earlier judgment where it dismissed a ruling that Apple owed the money to Ireland. And, as football fans will know, when the referee gets the call from VAR to re-examine a decision, a change of mind often follows.

So Ireland could yet get its €13 billion from Apple. But don’t hold your breath. We still have to see if the ECJ agrees with this week’s opinion of its senior adviser, the advocate general, that the case should be sent back to be re-examined by a lower court. And then more hearings and possible appeals lie ahead, all relating back to the original European Commission decision in 2016.

Beyond that, were the courts to rule finally that Ireland should get the money, other European Union countries where Apple did business might try to lay claim to some of it. In short, it could all get messy. More than ever, tax is now a contested area internationally, a part of the international economic culture wars around big tech, regulation, investment and trade in a world in upheaval.

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Ireland fought this because it went to the heart of the credibility of the tax system

As minister for finance, Paschal Donohoe worked to dial down the risks for Ireland by signing Ireland up to the OECD corporate tax deal and changing some tax rules. This was the right strategy. But as the Apple case drags on and other governments jealously eye the pile of tax being paid here, Ireland remains in the firing line.

As the story broke this week, Irish Ministers have come out with two talking points. Number one, not surprisingly, is that there was no special deal with Apple and the company paid all the tax that was due here. By supporting the European Commission’s argument, the ECJ advocate general has raised new questions about whether Ireland and Apple can win the legal battle on this point.

Number two is that the Irish tax system has changed in the meantime, the State is part of the OECD reform process and the tax breaks which Apple used have been ended. The Ireland Inc brigade of advisers and lobby groups will ride shotgun on this “nothing to see here” approach. Many of the more aggressive reliefs were, indeed, ended – though their gradual phasing out, along with generous allowances on new intellectual property investments here, helped keep the big players onside.

It is all part of a tax story going back many years. Apple was one of the longer-established companies which came off an old favourable tax regime for exporters which ended in 1990, leading to interactions between the Revenue Commissioners and a small number of big multinationals about how the new rules would work. The first disputed tax ruling by the Revenue Commissioners in relation to Apple dates from 1991. Whether what emerged was a special deal amounting to State aid for Apple from Ireland is what is in dispute.

Ireland fought this because it went to the heart of the credibility of the tax system. Ireland has long been criticised in the EU for some of its tax practices. The Government’s defence that “historic” practices have been phased out goes some way to acknowledging past sins.

[ Why does the Government not want the €13bn in back taxes from Apple? ]

[ Apple tax case may drag on ‘close to 2030’ as court rerun looms ]

The detail of the historically controversial tax arrangements is complexity itself. But the essence is simple. Apple and other big multinationals paid tax here on the basis of profits made in their Irish branches. Most of the profits earned elsewhere in Europe – and further afield – passed through their Irish operations but were not taxed here, instead ending up in zero-tax offshore tax havens. In the case of Apple, the European Commission argued that they should have been subject to Irish tax. Apple insists it paid all the taxes that were due.

Now, because of changes in Irish and international tax rules, a lot of the money earned by big multinationals in markets outside the US does land in their Irish subsidiaries, rather than just being funnelled through here on their way to sunny tax havens. A lot of these earnings remain sheltered from tax by big write-offs – allowed under Irish tax law – related to restructuring undertaken from 2015 onwards, when international tax rules changed. But, as we have seen, Ireland has been a huge beneficiary from the associated investment and the slice of tax that does land in our exchequer – and from the fact that a few of the big companies here have grown really strongly.

This has left the State’s finances hugely reliant on the fortunes of a few big companies. And with growth now sketchy in the US economy and weak in Europe, the results of consumer-focused companies such as Apple are mixed. Irish corporate tax revenues look vulnerable. How the iPhone15 does really matters to Ireland. So does whether Pfizer, falling back after a Covid vaccine boost, can get back to growth.

Fortunately, the decline in corporate tax appears to be related to the economic cycle, rather than some structural change in the way companies organise themselves and pay tax. However, we do not know how severely this will hit our corporate tax take. Ireland benefited from a post-Covid surge which has led to annual corporate tax revenues more than doubling since 2019 to more than €23 billion. The question is how far they could now fall back, as the world economy slows and the bounce disappears. Whatever the answer, it will have big implications for our politics, where debate has been conducted largely on the basis that the corporate tax gift would keep on giving.

This is part of a wider story of slowing Irish economic growth. Exporters are being hit by static or declining demand in many markets, while consumers are affected by higher interest rates. After a very strong few years, the Irish economy may be returning to earth. Dare we even talk about a soft landing?