The final figure could be as much as 19bn Euros and the Irish government does not want it! The EU Commission wants Ireland to take it, but the Irish government says no thank you. Why? Because it is not ours, they say. “Incredible!” most sane people would say. According to the Irish government this ruling threatens the integrity of our low corporate tax regime, which could jeopardise the future flow of foreign direct investment into Ireland. Simply put, it is about reputation and political in nature.
Now we have a situation where the present Irish government is joining Apple to appeal the EU decision at a time when there is a huge demand in Ireland for better social services especially in the area of housing and health, coupled with an astronomical level of national debt, but the government still says no.
The present Irish government is joining Apple to appeal the EU decision at a time when there is a huge demand in Ireland for better social services especially in the area of housing and health, coupled with an astronomical level of national debt, but the government still says no
The EU Commissioner, Margrethe Vestager, said the treatment of Apple by the Irish government amounted to illegal state aid. Vestager said “selective treatment” allowed Apple to pay a tax rate of 1% on profits made in the rest of the European Union, a tax rate which by 2014 had decreased to 0.005%. This tax “arrangement” with Apple by Ireland was really a form of state aid because the terms were so favourable to the tech giant, according to the EU Commissioner. State aid to companies is illegal, she concluded.
Michael Noonan, the Irish Finance Minister, says not so. He denies this accusation of state aid and wants to fight the Vestager decision in order “to defend the integrity of our tax system, to provide tax certainty to business, and to challenge the encroachment of EU state aid rules into the member state competence of taxation“. However, according to Vestager the EU ruling is related only to collecting the tax on profits, and not to the right of states to control their own tax systems. But Ireland sees the ruling as a clear attack on its right to control its own tax affairs.
Now life gets complicated. The Irish Revenue comes onto the scene. They tell us they have collected the full amount of tax due from Apple for profits made in Ireland in accordance with Irish tax law. They further tell us that Irish tax law does not apply outside Ireland. Apple, strangely enough, has two other companies registered in Ireland (Apple Sales International and Apple Operations in Europe) which seemingly have no activities in Ireland, no office, and no staff.
According to the Irish Revenue commissioner “the two companies concerned were not resident companies in Ireland for tax purposes”. They don’t make any profits in Ireland so they are not taxed here. Apple’s European sales profits are routed through these two companies (organised by the staff at the Irish company) to some unknown destination. These profits are not taxed by anyone, in fact. For their troubles, Apple paid 0.0005% tax to Irish revenue for this service which is about 50 Euros on every one million Euros earned in profits throughout the EU. The European Commissioner claimed that this arrangement is a form of state aid and that all profits earned by Apple outside the US should be taxed in Ireland. The Irish Revenue’s reply is that they are not the taxman for Europe or for anywhere else outside Ireland.
Apple paid 0.0005% tax to Irish revenue for this service which is about 50 Euros on every one million Euros earned in profits throughout the EU
Adrian Weckler, the editor of Technology, gives us an example, “When Apple sells an iPhone in Britain or Germany, its accountants mark it down as money in its Irish accounts”. But it doesn’t declare profits in Ireland on that money. The Irish Government accepts this because the phones are designed in the US, made in China and sold outside Ireland. Weckler adds that “while somebody may be owed €13bn, Ireland isn’t owed it”. The tax on these profits is the job of the revenue in the country where the phones are sold.
Then the Irish Finance Minister weighed in, claiming that this is more political than legal. It is all about the 12.5% Irish Corporate tax rate and Ireland’s reputation as a reliable country for foreign investment. His government is duty bound to protect this rate and reputation against any interference by the EU Commission. The taxation rate is a matter for the national state and not the EU Commission. Tim Cook, the current CEO of Apple, publically agrees that this is a political matter.
The exact grounds for the Irish appeal to the European Court are not known yet. However, I suspect Ireland (and Apple) may very well lose the case, but win the propaganda war that tax is the domain of national governments. In this way, Ireland will protect its national interest of maintaining its 12.5% corporation tax, be obliged to accept the money, and then possibly have to share some of it with Spain, France and other countries who may have legitimate claims to some of it.
On top of this, it is hoped, that Ireland’s reputation as a reliable place for foreign investment will remain intact.