Analysis: Government must hope Apple ruling is a one-off

Is Apple a once-off? Or are we looking at an "appalling vista" for Ireland, where our historic corporate tax system is gradually unpicked by European Commission investigations?

The Government here insists that the Apple investigation is a one-off and that they are not aware of any other cases under investigation. It is essential for the Government’s case that no such further investigations are launched, or at least nothing on a similar scale.

The commission has not done so to date, but presumably it has had a good look at the tax files of a number of other major multinationals, notably those, like Apple, who have been here for a long time.

The commission announced in late 2014 it would seek all tax rulings – or opinions – issued by all EU countries between 2010 and 2013. As part of the investigation, it is understood to have studied more than 300 tax opinions issued by Revenue over the period to companies based here.

Sources believe that it has also looked more closely at a smaller number of cases – perhaps four or five – in the context of the Apple investigation. These firms are likely to be others who have also been in Ireland for a long period and, like Apple, sought clarity from the Revenue Commissioners about how their profits would be taxed after the phasing out of export sales relief in April 1991.

Relief

Export sales relief ensured that companies paid no corporation tax on goods exported outside the State – the relief was ended in 1991 after negotiations with the European Commission, who held it was discriminatory.

It was replaced by a new 10 per cent corporation tax rate, later raised to 12.5 per cent. The big multinationals based here before 1990 are likely to have had similar discussions with the Revenue, though the precise structure put in place by Apple was unusual.

Government sources have taken comfort from the fact that none of these cases have been subject to a follow-up investigation – hence the official line that there is no other case under way. It remains open, of course, to the commission to launch such an investigation at any stage and it is a matter of speculation whether it has satisfied itself having examined other files here, or believes there is more to be looked at.

Sources in Dublin point out that part of the commission’s case is that Apple got special treatment. While this is true, legal experts say state aid law does not require special advantage to be given to just one company for it to be illegal – the key point is that some were denied a similar deal.

The one line in the commission press release which offered any comfort to Ireland was one that said that the decision “does not call into question Ireland’s general tax system or its corporate tax rate”.

While this is suitably vague to allow the commission to launch further inquiries if it so decides, it does suggest that the commission is not going to launch an all-out attack on Ireland’s corporation tax structure.

The Government will be glad that Minister for Finance Michael Noonan abolished the loophole that allowed Apple to have an Irish branch and a stateless headquarters all within one company in 2014.

At the same time, the Minister announced that the “double Irish” tax relief – the central feature to much controversial multinational tax planning here – would be phased out, but that existing players would be allowed use it up to 2020.

Serious question mark

The decision to end the relief was correct, but there must now be a serious question mark over the length of the phase-out period. Ireland would now be better placed had it been quicker.

Either way, the Government will – as well as appealing against the commission ruling – have a range of measures in the budget showing our compliance with OECD moves to crack down on global corporate tax avoidance.

We will bend over backwards to show that our system is compliant with the OECD-led international moves to reform the corporate tax system.

Sources in Dublin remain confident that the Apple judgment will not stand the scrutiny of the courts. Despite denials from Brussels, they believe the judgment is at least, in part, political.

If the political target is, indeed, our corporation tax system, then in time the commission could seek other targets here, depending on how the court process goes in relation to the Apple case.

However, a more subtle game may be under way. The commission is making the point that the profits made across Europe by big multinationals must be taxed somewhere.

To drive this home, they have picked a few high-profile cases – Fiat, Starbucks, Amazon and, top of the list, Apple. "We are the battleground to make sure corporates start paying tax somewhere," according to one Irish official source.

On this reading, the commission may be less inclined to target other Irish-based firms – provided Ireland meets its promises to continued reform of the corporation tax system.

Given the poor relations between the commission’s competition arm and the Government here – and the utter shock in Dublin at the €13 billion ruling – the Government is unlikely to get by way of reassurance from Brussels on this.

For now, we have a stand-off, with Dublin saying only one case is under way and Brussels saying that, if necessary, it can decide to launch an investigation at any stage.