How embarrassed should we be over the Court of Justice of the European Union (ECJ) finding that Ireland gave Apple illegal tax benefits worth €13 billion? The answer to the question depends on whose opinion we care about the most.
It was answered emphatically last month as it is most months. I doubt there is any other country in Europe where the monthly exchequer returns are deemed a news item. In the unlikely event that they are, it is even less likely that the nation waits with bated breath to hear how much corporation tax is collected.
The August figures did not disappoint. In the first eight months of the year, corporation tax was €3.6 billion in advance of forecast at €16.3 billion. The link to the coming budget and the prospect of even more Government largesse was quickly made. Tax cuts, once-off cost-of-living measures, higher tax-free inheritance thresholds, more subsidies for first-time buyers. All are within the Government’s gift.
We may not like to admit it to ourselves but, as a society, we are all well aware of the Faustian pact that was struck between an impoverished underdeveloped State and expansive US capitalism decades ago when we dropped our corporation tax rate to 12.5 per cent.
Corporation tax keeps the show on the road in Ireland and the uncomfortable truth is that the small number of multinationals — about six, including Apple — that pay the bulk of it are the most important constituency when it comes to the fallout from the Apple tax case.
If you accept this premise, we have little to be embarrassed about. Apple is not down €13 billion because the Government gave it bad tax advice or reneged on a deal. Apple has a problem because a scheme that it devised, along with its advisers, to reduce its global tax bill did not work.
Ireland’s involvement was to agree with Apple’s interpretation that the structure did not breach our tax law. It turns out the European Commission thinks it did and the European Union’s top court agrees with them.
Ireland had no choice but to challenge the European Commission’s ruling alongside Apple. To do otherwise would send a very negative signal to the multinational geese that lay the golden egg of corporation tax each month.
There is a very real issue underlying the Apple case. It is the use of offshore entities by multinational companies to avoid paying tax with a consequential loss of revenue to countries in which they do business
It was worth potentially forgoing the €13 billion the commission said Ireland Inc was owed to underpin the credibility of the State as counterparty in foreign direct investment deals with multinationals. We have kept our end of the bargain and, hopefully, the wider multinational base appreciates the point. Apple will hopefully be equally clear-eyed about the fact that its problems are not of our making.
In terms of other constituencies, the least important is probably our fellow members of the European Union and the European Commission. The authors of the Treaty of Rome which established the European Economic Community — the forerunner of the European Union — in 1957 were in no doubt about the need to regulate competition and ensure that member states did not seek to advantage domestic companies and interests.
It was obvious that the member states would try to use the rules to their advantage. The EEC [European Economic Community] went on to establish the Directorate-General for Competition for this very reason and the current commissioner, Margrethe Vestager, drove the investigation of Apple. None of our European partners has clean hands in this regard.
The final constituency is ourselves. There is little to worry about in this regard but perhaps there should be.
There is a very real issue underlying the Apple case. It is the use of offshore entities by multinational companies to avoid paying tax with a consequential loss of revenue to countries in which they do business, which include some of the poorest in the world.
The Global Tax Evasion Report 2024 published by the EU Tax Observatory, an independent research body, says that multinationals shifted $1 trillion to tax havens in 2022. The corporate tax that was avoided as a consequence was the equivalent of nearly 10 per cent of all corporate tax revenues collected globally.
Ireland plays an outsize role in this system which the Organisation for Economic Co-operation and Development calls Base Erosion and Profit Shifting or Beps. It is estimated to cost countries $100 billion (€90 billion) to $240 billion in lost revenue each year.
Apple’s Irish tax scheme falls pretty squarely into Beps. Efforts to combat Beps — most notably the 2018 cut in US tax rates and an international agreement by 140 counties, including Ireland, on a minimum 15 per cent tax on multinational profits — have made little impact. They have been significantly eroded by continued tax competition between countries. It is a negative sum game; for one country to win, another must lose.
To home in on the fact — as Opposition parties have done — that Ireland was wrong to stand over its view that the Apple scheme was legal is perhaps missing the point. If there is cause for embarrassment, it is our continued centrality to a rotten system that deprives some of the poorest countries in the world of much-needed revenue.
But we are probably going to be too busy fighting over what to do with Apple’s €13 billion to worry about that.
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