Ireland should be happy with the EU's ruling against Apple

A three-year investigation by the European Commission (EC) has concluded that Ireland should recover up to €13 billion in back-taxes from US giant Apple. The weird thing is, neither Apple nor Ireland are happy with the ruling.

The EC ruling states that: "Member states cannot give tax benefits to selected companies - this is illegal under EU state aid rules", so that Ireland's granting of beneficial tax rules to Apple is therefore illegal. Although the standard rate of corporate tax in Ireland is a paltry 12.5% (already among the lowest in the developed world), Apple has been paying substantially less than that, with the report singling out 2003 (when Apple paid about 1%) and 2014 (when it paid 0.005%). Ireland vehemently maintains that it is not a tax haven, but its tax rules also allow multinationals to legally shift profits to countries that are considered tax havens (a loophole that is apparently currently being phased out).

Of course, Apple is blustering about how unfair it all is, and how they are meticulous about paying whatever taxes they owe. But bear in mind that Apple - which has a stock market valuation of around $600 billion, and made a profit of $53 billion in 2015 alone - channels (legally) 90% of its foreign profits to Ireland to take advantage of its favourable tax regime, as well as to other subsidiaries which have no tax residence. It carefully stays within the word of the law, but you could argue that the law is just plain wrong in these kinds of cases (Nobel laureate Joseph Stiglitz, who ranks as the third most influential economist today, refers to it as "the dark face of globalization" and adds that "seeking special favors has undermined the whole international economic system"). And you could argue that Apple has used its not insignificant leveraging power in a bullying way to strike a deal that Ireland would not normally be tempted to accept.

The Republic of Ireland, for their part, is up in arms because they see the EC as interfering in its own sovereign tax policies, and is worried that Apple might pull out and take its business with it (although it is hard to see what concrete economic and employment benefits Apple is conferring on the country). Ireland is also worried that the ruling make it less attractive as a destination for foreign direct investment. The US treasury is also rumbling about the EU becoming a "supranational tax authority", and undermining "foreign investment, the business climate in Europe, and the important spirit of economic partnership between the US and the EU".

But the EU rules are pretty clear: member states cannot offer beneficial tax terms to selected individuals or companies. And Ireland will have to kowtow if it wants to continue to receive EU financial benefits. The EC has already made similar rulings regarding Starbucks (in the Netherlands) and Fiat (in Luxembourg), and is purportedly preparing to take on Google.

I must confess, I am a little surprised that Ireland is quite so combative over the ruling. Yes, they may have had their nose put out of joint as regards the independence and integrity of their national tax system. But the €13 billion windfall would fund its complete healthcare budget for a full year, or two-thirds of its social welfare bill. And wouldn't it prefer to be getting 12.5% rather than 0.005%? And, even if Apple did decide to take its tax avoidance business elsewhere, what would Ireland be missing out on? 0.005% is what - a couple of million bucks.

 

UPDATE

I was amused by the reaction of Apple CEO Tim Cook. Full of righteous indignation, he blustered that the EC ruling was merely "political crap", and not a laudable attempt to get blood-sucking corporations to pay their fair share of taxes.

Hardly surprising as a general reaction, but, interestingly, he also claimed in the interview that that Apple is "subject to the statutory rate in Ireland of 12.5 percent", and that the company "paid $400m in taxes in 2014". Now, by my calculations, based on a 2014 net income of $39.51 billion, that comes to almost exactly 1%. Not 12.5%. This is what is called, in technical economic terms, "talking through one's ass".