Ivan Fallon: Ireland will not ditch Apple or tax policy behind growth
We Irish are different. What other country in the world, when offered a financial windfall equivalent to 20 per cent of its government revenue, would angrily turn it down? Yet that is what Ireland did last week when a fairy godmother, in the shape of Margrethe Vestager, the ultra-ambitious head of the European Union’s competitive watchdog, insisted it accept €13 billion (Dh53.3bn) – €20bn including interest – from Apple for underpayment of past taxes.
Lesser countries might have pocketed it and used it to pay down debts of €200bn, or get back some of the €64bn it spent bailing out its banks in 2008. But not Ireland, whose cabinet arraigned themselves solidly on the side of Apple, which will appeal the EU ruling.
Tim Cook, the man who succeeded Steve Jobs as Apple’s boss, blasted the EU judgment as “total political crap” and the US Treasury, which has been pursuing Apple for years to pay more tax, branded it as “unfair” and said it could adversely affect future US investment in the EU.
The history briefly is this. Back in the 1960s, Ireland, then the poorest country in Europe, began offering international companies low taxes and cash grants as an incentive to invest and create jobs.
It was a policy which exceeded beyond its expectations and became the single-biggest driving force for what became known as the Celtic Tiger, which in two glorious decades took Ireland from an essentially rural economy to the OECD’s fastest-growing country through the 1990s and early 2000s.
The official rate of corporation tax, originally 10 per cent, was raised to 12.5 per cent, by far the lowest in Europe and well under half the US corporate tax rates.
Big international companies have poured into Ireland to site their European headquarters there, taking advantage not just of low taxes but of its EU membership, a well-educated workforce and the fact it is English-speaking.
Among them was Apple, which in 2003, when it moved into an office in Cork, wasn’t the giant it is today, but was still a big catch. Today Apple employs 6,000 people across the country and has spent €300 million developing an area outside Dublin known as Silicon Docks, with another €150m on the way.
Apple has proved a magnet for other big names. Facebook is currently constructing a €200m data centre in Dublin and Amazon and Twitter have also used it as their gateway into Europe, or, if you prefer, their tax shelter for profit earned in the rest of the EU.
The EU officials have always hated Ireland for that but, even when they had to bail it out in 2010, could not blackmail the country to change. But when the true scale of the “sweetheart” deal with Apple was uncovered, EU officials threw the book at it, accusing the California tech firm of paying just 0.005 per cent on its 2014 Europe-wide profit, or €50 for every €1m in profit it made on the continent, and demanded it refund the Irish government the difference between that and the official rate.
Although Ms Vestager is basically accusing Apple of a giant tax dodge, she knows there is nothing illegal about what it has done.
Her case is that the deal with the Irish government constituted illegal state aid as similar terms were not offered to all firms.
The figures involved are enormous. Apple has US$215bn in cash held offshore to avoid the penal taxes the US imposes on overseas profit.
The result is that Apple borrows heavily in the US to finance its dividends while keeping its cash pile, earning almost nothing, sitting in London and elsewhere.
Officials in Washington have branded Apple “the holy grail of tax avoidance” and have been chasing it for years, as has the EU. Now they think they have found a way to get it through competition law.
But little Ireland is refusing to join in, even at the mouthwatering prospect of receiving all that Apple loot.
It is becoming clearer by the day that the world is uniting against the tax avoidance measures pursued by the big international companies and, acting together to plug the loopholes, is already forcing them to make at least a token contribution. Google has agreed to pay the UK government a derisory £130m (Dh637.7m), just 3 per cent of revenue, and Amazon, Starbucks and McDonald’s are under even more ferocious pressure.
The biggest threat to Ireland’s low tax regime may come from an unexpected quarter – even before its EU referendum, Britain had already cut its corporate taxes to 17 per cent.
Now it is looking at further cuts to the 12 to 15 per cent range. There may be some benefits to Brexit after all.
Ivan Fallon is a former business editor of The Sunday Times.
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Published: September 5, 2016 04:00 AM