The European Commission’s judgement about Apple’s tax affairs in Ireland was always expected to be negative. All the signals were that it would maintain its original view that the US giant was the recipient of illegal state aid from the Government over a long period of years. However, the scale of the bill which the commission feels is owed to Ireland is extraordinary.
It remains to be seen what the European courts will decide, but to some extent considerable damage to Ireland has already been done. The huge scale of the judgment, involving €13 billion in back tax plus interest, means this is a story on a completely different scale to other cases taken by the commission on the tax issue.
Ireland has always presented itself as having a tax system with a clear legal underpinning, offering certainty to companies. Rightly or wrongly the judgment casts doubt over the way we taxed at least one major corporation – and this carries with it reputational damage for Ireland.
The Government will argue – and there is a basis for this – that rule changes in recent years have closed off some of the tax arrangements central to the Apple case. However, the damning verdict by the commission on how tax was applied in the Apple case leaves the Government with little option but to lodge an appeal, given the central importance of foreign direct investment to our economy. As Apple will also appeal, a lengthy legal process is inevitable.
Precedent offers little guide to what the European courts may decide. The Irish side is insistent that the commission has erred legally, as is Apple. Ireland will also claim an infringement on our tax sovereignty. The case has all the hallmarks of a landmark debate about the scope of powers or “competences” of the commission in national affairs.
One aspect of the judgment which is particularly strange is the contention that all the tax may not be owed to Ireland – and some may be owed to other European countries, or to the US. That the commission would say this, while simultaneously ruling that the money should be paid to Ireland, appears contradictory. Either the company owes tax in Ireland, or it doesn’t.
In a wider sense this point also goes to the heart of the issue. Big US companies have used the interplay of European and US tax laws to pay very little tax on profits earned in European markets. Ireland’s tax system is only a part of this and, in fact, much of it is based on the peculiarities of US tax law.
There is no doubt that this needs to change and that the amounts paid by many of these companies has been indefensibly low. It remains to be seen, however, if the European courts support the commission’s drive to address this problem via state aid rules.