Tuesday wasn’t a bad day for Ireland’s reputation in global circles. It was a very, very bad day. There was the size of the European Commission’s assessment, the global headlines, the dredging up of the “tax haven” jibe and, to add final insult to injury, the UK seeing Ireland’s difficulty as its opportunity as it made a renewed pitch to take foreign direct investment from us.
One could forgive Michael Noonan and his officials if they felt like Sisyphus, a Greek mythological figure forced for eternity to roll a boulder up a hill only for it to roll back down again.
The global tax environment is changing – led primarily by the OECD – and over the last three years Ireland has been an acknowledged leader in adapting to this new environment and changing many fundamental aspects of the tax system. Some of us have actually pushed for those changes ahead of the Government's implementation of them. And then came Commissioner Vestager…
So what next? Do we “take the money and run” as Fintan O’Toole suggested?
Do we follow Prof Stiglitz’s advice and not appeal the decision? Or do we take a polite variant of Michael O’Leary’s advice and tell the commission to shove it?
Already I can feel fingers hovering over keyboards as people rush to beat down any suggestion that the commission might actually be on shaky legal grounds with its analysis. While the judgment is “novel” in polite language and appears to run contrary to OECD guidelines, it really reflects the law as the commission would like it to be and not the law as it actually is. But that will now be a matter for the courts and let’s put that to one side for now.
Where does Ireland go from here?
Firstly, the commission’s statement did actually bring some good news. “This decision does not call into question Ireland’s general tax system or its corporate tax rate.”
The issue arises from “specific provisions of Irish tax law that are no longer in force”. The commission spent many months looking at many Irish corporate taxpayer files as part of this process and has singled out the this case as the only one to examine further. Irish officials are open about the fact that there is no other case under examination.
So the commission is saying that Ireland does not have a systemic issue. There is a single case which is now going to a judicial process. Hardly symptomatic of a tax haven, one might suggest? But worth emphasising because it doesn’t fit the narrative in some quarters.
Good news
So, should we “take the money and run”? Well, the good news is that we will have the money pretty soon in the State’s bank account, albeit in escrow. While it would be fantastic to then be able to spend it on worthwhile projects, the reality is that it is far from being “our” money yet.
The commission believes that Ireland gave State aid but that this tax collected may now be reduced if other countries required Apple to now pay more tax in their countries (including the US which came out strongly in favour of Apple). Alternatively, if the decision is overturned by the European Court, the money goes back to the company.
Charlie McCreevy was criticised by some commentators when, as minister for finance, he said “when I have it, I’ll spend it”. The notion being pushed by some now is “if I have it – even if it may not be mine – I’ll spend it and worry about it further down the line if I have to give it back”.
A popular and populist approach but a similar suggestion in other circumstances would rightly give rise to an accusation of irresponsible budgetary politics.
A more emotive issue is whether Ireland should stand with the company and appeal the case. This is an issue of optics more than substance. The reality is that the company has made it clear that it is going to appeal. Therefore, irrespective of what decision Ireland takes, the judicial process will commence and the “ownership” of the money will not be determined until after that process concludes and perhaps even beyond that.
So, taking the money out of the equation, the argument for walking away can be summarised as “it may be legal but it isn’t right or fair”. The argument for appealing the case is that the commission’s finding has no basis in law, and it has accused the State of acting illegally.
The latter cannot be allowed to stand and failing to address the former could shake confidence that Ireland will defend domestic and foreign taxpayers here from extra statutory “grabs” by a supra-national body. Take your pick, but either way the company’s decision means that the judicial process will go ahead.
Global chess board
There is a wider debate, which is under way now, about the levels of tax which multinational companies should pay and where such tax should be paid. Getting agreement internationally on a tax system suitable for the modern age is hugely important. The US reaction, both in advance of and since Tuesday’s announcement, would suggest that the commission decision has not helped this process.
While ostensibly this is about Ireland, the reality is that we are a relatively minor player on a global chess board.
Since the OECD process commenced in 2013, Ireland has been a leading participant in this debate, and has made changes to its regime where some other countries have not yet. But to be very clear, every country is out to maximise its own tax revenues and heighten the attractiveness of its own tax regime. Ireland is no different. Fair tax competition will continue to have a part in Ireland’s overall offering.
Our reputation did take a hit this week and there is no escaping that. But this should not obscure the fact that the journey the Irish tax system is currently on of fair internationally-acceptable tax competition is the right one.
Feargal O'Rourke is managing partner of PwC Ireland. Twitter @feargalorourke