The Dublin government is the subject of anger and ridicule after it defended illegal tax dodges by multinational corporations and rejected a European ruling that it receive up to 13 billion euro in unpaid taxes from US corporation, Apple.
The EU’s competition arm said on Tuesday that Apple had been given illegal state aid through two tax ‘rulings’ quietly granted by the state to the company in 1991 and 2007. The back-room deals allowed Apple to avoid taxation on almost all profits generated by sales of its products in the EU single market, because Apple recorded the sales in Ireland rather than where products were sold, the commission said.
Commissioner Margrethe Vestager said Apple paid an effective corporate tax rate of 1 per cent on its European profits in 2003, reaching down to 0.005 per cent by 2014. This was achieved by funnelling sales through an office in Ireland with “no employees, no premises and no real activities”.
“Member states cannot give tax benefits to selected companies - this is illegal under EU state aid rules,” she added.
The very favourable agreements secured by Apple, described as “advance pricing arrangements” by the Irish Revenue and as “sweetheart deals” by others, have long been suspected of involving some level of corruption.
The EU commission said that Irish officials did not apply the proper “arm’s length principle” when calculating the tax due. Its call for the accumulated unpaid tax to be repaid in full shocked international capital markets.
After a few days of chaotic internal wrangling, the minority government comprised of of Fine Gael and independents announced on Friday that it would refuse to collect the unpaid tax. It said it would fight on behalf of Apple in appealing the ruling, a process that could take six years.
Although Irish people carry the second highest per capita debt burden in the world thanks to the actions of a series of corrupt right-wing government, Minister for Finance Michael Noonan again provoked outraged when he vowed to back Apple by appealing the decision to the European courts.
Without a trace of irony, Noonan referred to the need to protect the “integrity” of taxation and Irish sovereignty, and that he had no choice but to appeal.
“This is necessary 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 sovereign member state competence of taxation,” he said.
The back taxes from Apple alone could cover the entire annual Irish health budget, build about 100,000 homes for the poor or pay off a massive chunk of the nation’s debt, about $3,000 for every man, woman and child.
However, the country’s reputation as a low-tax haven has long been a cornerstone of Dublin government policy, attracting international brands such as Yahoo, Google, and Facebook to Ireland.
The government argues the companies are benefiting the economy by hiring staff, despite funnelling international profits through the state.
Even when the 26 County state collapsed economically and was forced to seek an international bailout six years ago, the right-wing governments resisted pressure to raise its basic 12.5 percent rate. “To do anything else, it would be like eating the seed potatoes,” Noonan told RTE television on Tuesday.
Noonan claimed international jealousy at Ireland’s low rate of corporation tax was behind the the European Commission finding, and warned of further efforts to end the 12.5 percent rate. There have even been hints that the dispute over the ‘red line’ Irish corporate tax rate could push Ireland out of the EU, alongside Britain.
“I think they are establishing a bridgehead,” Noonan said. “There is a lot of envy across Europe about how successful we are in putting the HQ of so many companies into Ireland and especially into Dublin.”
He said the Dublin parliament would be reconvened early on Wednesday to debate a motion on the government’s decision.
The low-tax regime dates back to the 1980s when the 26 Counties boasted a tax loophole dubbed the ‘Double Irish’ arrangement. Apple was among the first companies to use the arrangement to lower its corporate tax liability. It has had a base in Ireland since 1980, and employs around 5,500 people in the country, with its biggest operations in Cork.
Apple Chief Executive Tim Cook on Thursday described the imposition of a 13 billion euro back tax bill as “total political crap” motivated in part by anti-U.S. bias. The Speaker of the US House of Representatives Paul Ryan denounced what he described as “a cheap money grab by the European Commission, targeting US businesses and the US tax base.”
But Trinity Professor of Finance Brian Lucey described the decision to refuse the Apple tax windfall as another example of the “leprechaun economics” which grossly distort the 26 County state’s economy. He questioned the facility offered by the state to multinationals to use shell companies to move profits around to lower taxes. “You have to wonder if morally we need to be part of this,” he said.
Nobel prize-winning economist Joseph Stiglitz attacked the government’s insistence that it never gave favourable treatment to Apple as “utter balderdash”. He said he found it “absolutely mystifying” that it didn’t use the 13 billion euro to help build a real economy by capitalising on the state’s young, educated labour force.
Richard Boyd Barrett TD said the ruling confirms what People Before Profit have been saying for a number of years, that “the entire political establishment have colluded over many years with Apple in an act of economic treason with to rob the Irish public of.. cash for public housing, the health service and other vital public services.”
Sinn Fein MEP Matt Carthy demanded the Irish government immediately act to recover the monies owed.
“How can the Irish government possibly stand over its claim that no favourable treatment was granted to Apple when it was paying just 50 euro in tax per million euro?” he asked.
“This government and its predecessors have been crippling local small businesses and households with taxes and charges, and today they’re on the record as saying they will spend taxpayers’ money to try to avoid recouping billions owed to it by one of the richest multinationals in the world.”
He said the sweetheart deals between Apple and successive Dublin governments had caused “massive damage” to the state’s international reputation. The decision on whether or not to appeal the ruling must be put to a vote in the Dail, he added.
“Sinn Fein is demanding a public inquiry into the circumstances in which these tax rulings were issued in order to establish who is responsible.”