Cliff Taylor: Win or lose, Apple tax ruling will be bad news for Ireland

European court decision due this week will put corporate tax policy back under spotlight

Apple chief executive Tim Cook with former taoiseach Enda Kenny the company’s campus in Cork in 2014.

Apple chief executive Tim Cook with former taoiseach Enda Kenny the company’s campus in Cork in 2014.

 

Heads we lose and tails we, kind of, lose too. Though of course the €14 billion or so would be nice. A decision on whether Ireland illegally favoured Apple in its tax arrangements here, as was found by the European Commission, is due to be made by the general court of the European Union next Wednesday. Whatever the outcome, this will put Ireland right back in the headlines at a time when international corporate tax is already a very hot issue. This will, to use the well-worn phrase, be weaponised and Ireland will be the target.

The court is deciding on an appeal by Ireland and by Apple against the commission’s 2016 decision, which ruled that the company owed more than €13 billion in back taxes – since grown a bit in an escrow account. As of now, as Father Ted might say, the money is just resting in Ireland’s account as the company had to pay it over, but it is frozen pending the judgment. It will almost certainly stay there after next Wednesday, as whichever side loses is likely to appeal to the European Court of Justice, which would take another couple of years.

This wave of publicity about the Apple case will resurface at the most sensitive of times

From a layperson’s point of view, two things seem clear. The first is that Apple, like a lot of big US companies, organised itself to minimise the tax bill on profits earned outside the US and two Irish subsidiaries were at the heart of this. Apple insists that it has always stayed within the tax laws – what the commission found was that a deal was done between the company and Ireland which gave it an unfair advantage in its tax arrangements over many years. In other words, one not available to other companies. It was, they argued, a breach of competition law.

The second point, even if you conclude that the tax is owed, is that it is a big stretch to suggest that it is all owed to Ireland. The commission conceded as much by saying at the time of the decision that other EU countries where Apple did business might want to make a claim that some of the cash was owed to them. This seemed a weak point of their case. But we need to be conscious that this decision will turn on points of tax law in relation to transfer pricing, where there was no Irish legislation at the time and on interpretations of communications between Apple and the Irish Revenue, so the outcome remains uncertain.

Particularly in the light of the Covid-19 hit to the exchequer, Ireland would get a financial boost if it could “take the money” in this game of who doesn’t want to be a multibillionaire. But the problem is that a decision against us would cast doubt on the way we handled multinationals over the years, could open up other cases and would certainly be used against us in the vicious global tax debate now under way, where the stakes for Ireland are enormous.

That said, whatever way the decision goes, this can only put Ireland and our corporate tax policy back in the headlines. If the court accepts that Ireland did not give a selective advantage to Apple, then it removes one line of attack on this country, which is that we did special deals in return for jobs.

But another remains – the Apple case highlights how Irish subsidiaries were part of a global chain where US companies moved profits earned outside the US through Ireland and out to tax havens such as the Cayman Islands. They used this to, at times, reduce their tax bills on earnings outside the US to very low levels. That US tax law was central to this rarely features in criticism from across the Atlantic.

This wave of publicity about the Apple case will resurface at the most sensitive of times. A drive to get global agreement on how multinationals should be taxed under the aegis of the OECD is in trouble as the US withdraws its participation in one part of the talks. It argues that US companies are being victimised and is threatening trade tariffs in return. Washington will watch the Apple judgment closely. If the OECD deal collapses, countries could all go their own way and EU tax plans inimical to Ireland could well be revived. All this could yet pose a threat to Ireland’s corporate tax revenues and this country’s ability to attract new investment.

And there is an ultimate irony here. Ireland has always done well out of the multinationals, getting jobs and a slice of tax. Now, however, our corporate tax take is soaring, due in part to earlier OECD reforms which pushed the multinationals to stop using offshore tax havens. They came under pressure to move key parts of their structures – the companies that hold their intellectual property – out of places such as the Caymans. And the logical place to move them was to a country where they had existing operations – and for many, including Apple, this was Ireland.

So the old “double Irish” structure, using companies located in Ireland but not tax resident here, has been replaced. Now much more profit earned internationally ends up staying in companies tax resident here and while much of this is sheltered by tax allowances, we are also seeing a big hike in the corporate tax take. All you need to add are finance ministers elsewhere in the EU hungry for more tax as their exchequers are ravaged by Covid-19 and you can see that this will go down like the proverbial lead balloon. The pressure on Ireland to accept change will grow.

Win or lose, the Apple judgment will put Ireland’s corporate tax back in the headlines. It will once and for all disprove the old saying that there is no such thing as bad publicity.

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