Fri | Sep 22, 2017

Apple, Ireland to appeal US$14b tax crackdown

Published:Wednesday | August 31, 2016 | 8:00 AM
In this 2011 file photo, the Apple logo is displayed at the company's store in Grand Central Terminal in New York.

In normal circumstances, a €13-billion (US$14.5 billion) cash award would make any country ecstatic.

But Ireland is no ordinary country when it comes to tax law - and its government insists it doesn't want the colossal windfall.

The Irish government joined Apple in vowing Tuesday to appeal the European Commission's judgment that the smartphone and computing giant didn't pay the correct volume of tax to Ireland for more than a decade, a mounting bill that analysts say could constitute €19 billion (US$21 billion) with interest.

At stake is the foundation of Ireland's multinational-dependent, export-driven economy, which has rapidly rebounded from a banking crisis and 2010 international bailout to become once again the fastest growing in Europe.

Since the 1980s, successive Irish governments have made low corporate tax and other tax-avoidance measures a key part of their sales pitch to woo foreign firms to Ireland.

Today, most of the biggest names in drug making, social media and online commerce, software and other high-tech industries have made Ireland their preferred European base - in part because, as the European Commission's damning judgment has just concluded, the Irish seek to tax multinationals' worldwide profits as little as possible.

IRELAND'S STRATEGY

Instead, Ireland's strategy aims to keep as many foreign job creators anchored on the island as they can. The approximately 1,000 foreign companies, mostly American, on Irish soil employ 100,000 people - some 5 per cent of the workforce - but generate more than nearly a quarter of Ireland's economic output. They directly pay Ireland more than €2 billion annually in tax, a figure dwarfed by their much larger investment in salaries (€6 billion), infrastructure and research (€3 billion) and Irish goods and services (€4 billion).

The European Union found Tuesday that the US technology giant had paid next to no tax across the bloc's 28 countries for over 11 years.

The ruling is a dramatic escalation by the EU executive commission in its battle to have multinationals pay their fair share in the region, where popular outrage over alleged corporate tax dodging is common after years of financial crisis and austerity budgets.

The EU says that many multinationals - including Starbucks, Fiat and Amazon - struck deals with EU countries to pay unusually low tax in exchange for basing their EU operations there.

EU Competition Commissioner Margrethe Vestager said that a three-year investigation found Ireland granted such lavish tax breaks to Apple that the multinational's effective corporate tax rate on its European profits dropped from one per cent in 2003 to a mere 0.005 per cent in 2014.

That last tax rate meant that for each €1 million in profits, Apple paid just €50 in taxes, Vestager told a news conference.

"Member states cannot give tax benefits to selected companies - this is illegal under EU state aid rules," Vestager said.

Apple has 5,500 workers in Ireland, making it one of the biggest private-sector employers.

Apple said in a statement that it had followed the law and paid every cent of the taxes it owed. It said it would challenge the EU action in the European courts, and predicted it would be vindicated.

If Apple were to lose its appeal, Ireland's sometimes gravity-defying growth would lose a key foundation stone as a succession of companies with similar tax deals face retroactive charges, rendering the tax-efficient reputation of Ireland null and void.

But the sheer size of Tuesday's award - worth €2,800 (US$3,150) for every man, woman and child in Ireland - creates unexpected political difficulties for the government, which briefed journalists beforehand to expect a vastly smaller sum. The money could transform Ireland; the Irish Times bills it as the equivalent of 20 new hospitals or an end to property tax for the next quarter-century.

Irish Times columnist Fintan O'Toole quipped that Ireland's tricolour flag should have an Apple logo in its centre and the country now risked being defined by "the rest of the world as the tax avoider's crazy little sidekick".

He argued that Tuesday's surprisingly "eye-watering figure" of €13 billion meant Ireland might be wise to cash in a chip that would allow Ireland "life-changing" levels of investment in combating poverty.

"Champagne corks should be popping in government buildings with the news that €13 billion is owed to the state, but instead the panic button has been pressed," said Paul Murphy, an opposition Socialist Party lawmaker. "It shows the reality that the government represents the interests of major corporations instead of the majority of people in this state."

SHAFTING INVESTORS

He said the Apple money was big enough to clear Ireland's gridlocked waiting list for welfare housing and eliminate a growing trend of homelessness. "Instead," he said, "the government wants to keep Apple on its US$200-billion cash pile."

Finance Minister Michael Noonan said Ireland couldn't afford to be seen as a country that shafts its key investors. He compared the act to a farmer choosing to eat the seeds rather than grow the crop.

He said overturning the cash award would be essential "to defend the integrity of our tax system, provide tax certainty to business, and ... send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment".