“Surprise.” That was how one senior government advisor described the decision by the advocate general at the European Court of Justice to send the long-running battle over Apple’s tax affairs in Ireland back to a lower court because of what he described as “a series of errors of law” in an earlier judgment.
The decision caught the government off guard; policymakers within the Department of Finance had expected the advocate general to back up a 2020 general court ruling that the European Commission had failed to stand up a claim that the tech multinational owed the country more than €13 billion in back taxes.
The decision will prolong the lengthy legal battle, perhaps by a further five years. There will be various appeals and further judgments. The Irish government will do whatever it can to avoid being paid €13 billion by one of the world’s most profitable companies; such is the nature of Ireland’s industrial policy.
Several government sources told me in recent days that they were between 75 per cent and 85 per cent certain that the advocate general was set to back up the earlier decision and rule in favour of Apple (and Ireland). The decision came as a shock. “Put it this way, it was not what we expected,” said one senior government source.
However, there is a wider context to the move. And that context is growing tensions between a small number of global technology giants on one side and regulators and politicians on the other side. In short, influential policymakers all over the world, if not yet in Ireland, have fallen out of love with the tech sector. The landscape has shifted. The latest salvo in the Apple tax battle is just further evidence of this.
We have seen it in the ongoing work of the OECD to ensure a minimum corporation tax rate and to wean multinationals away from offshore tax structures. We have seen it both in Europe and in the US with efforts to regulate the rise of artificial intelligence. It is further evidenced by the rise in data regulation, and privacy controls. We have witnessed, in real-time, the efforts to tame the unbridled rise, influence, and dominance of big tech.
The Apple move is part of this. The Apple tax case is a legacy of a different era, something Thomas eloquently teased out in his piece yesterday. I don’t believe for one moment that Apple was the only company to receive favourable treatment over the years.
But the Apple deal goes back 30 years, and the enforcement action in relation to it goes back more than a decade, to a world that was deep in austerity and when governments were striving to ensure that the right amount of tax was paid in the right place.
The world has moved on since then. New regulations have made it impossible for such deals to take place. Ireland has signed up to them; partly to make sure it was inside the tent as the new regulations were being made but also to ensure that we were seen as legitimate players in the new tax order. We wanted to differentiate ourselves from offshore tax havens. And, the strategy has been remarkably successful.
The notorious double Irish agreement has been replaced by the Green Jersey scheme, where multinationals store their intellectual property in Ireland, and obtain massive tax benefits by slowly writing it off, an arrangement that we have covered extensively.
Ireland is trying to thread a delicate diplomatic and financial balancing act. On the one hand, we have to be seen to comply with international best standards. On the other, we must ensure that we also give the right assurances to the multinationals whose corporation tax receipts have helped the country navigate a pandemic and a cost-of-living crisis.
This is why the government does not want Apple’s money. Yes, it might garner €13 billion, a sum of money that seemed so much larger a decade ago, but it is still enough to cover half the health budget. But the view in the Department of Finance is that accepting the money would undermine a key pillar of our industrial policy. And, they believe that is worth far more than €13 billion.
The latest battle with Brussels over Apple also comes at a time of heightened uncertainty over the stability of Ireland’s buoyant corporation tax receipts. Each Monday morning, I speak with Stephen Kinsella about his weekly column. We thrash out concepts, ideas, and potential topics. Last week, both of us were in agreement as to what he needed to write about: corporation tax.
The reason was obvious. Yet again, corporation tax receipts had underperformed. This time, it was because of Pfizer, as Thomas outlined last week. Before, it was a timing issue for a small number of other multinationals. But the trend was obvious: the days of rampant increase in corporation tax have come to an end.
Stephen outlined that corporation tax receipts amounting to €1.3 billion in October were down by €1 billion, some 45 per cent, on the same month last year. This is the third consecutive month in which corporation tax has declined year-on-year. The November corporation tax data is normally a very big month. As Stephen says, if they are as weak as the last three months, we are in some trouble.
He added: “Has the unsustainable process come to an end? Or is it just proof that Ireland has hitched its wagon to the (literal) fortunes of a number of very large, but idiosyncratic, firms? If Apple’s next phone is a dud, that is a problem for us. If Microsoft gets its AI integration strategy wrong, again, big problem for us. If Pfizer falls behind on pharmaceutical research, again, a problem for Ireland. These are just three firms but you get the idea.”
Is Ireland right to battle Brussels over Apple? In a sense, it has no choice. The country cannot abandon its commitment to the multinational sector.
But we also need to ask ourselves some hard questions. I have reported on the Apple case for more than a decade. The response of the government has been to deny and to obfuscate. We have never owned the controversy.
We talk about the tax deals with Apple. In reality, there were two tax deals, and it is worth drawing the distinction between the two – because the timing of them matters.
The first deal came in 1990/1991, in a bid to retain multinational investment following the abolition of the export sales relief system which exposed corporate profits to a new 10 per cent tax rate. The deal did not relate to the corporation tax rate; instead, it centred on the base tax at which profits were calculated, and the method used by Apple to work out its taxable profits.
Ireland and Apple were both in different places at the time. The country was veering towards financial collapse, while Apple was underperforming and was far from the behemoth it is today.
However, according to the commission, the deal was rolled over again in 2007. By that time, both Ireland and Apple were swimming in cash. It has never been made clear why the deal was extended or who sanctioned it. But there is a profound distinction between when the first deal and the second were agreed. The latter is just so much harder to justify. It was not about securing the future of investment; it was simply a sweetheart deal for a phenomenally profitable company.
The battle between Europe and Ireland over Apple is historical at this point. But it also matters. It matters because the mood music is changing towards multinationals, and at a time when Ireland needs multinational tax receipts like never before.
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Elsewhere last week, we were delighted to welcome Niall Sargent to the team as our new Current Affairs Correspondent. He hit the ground running with a two-part series on commercial peat extraction. In part one, he revealed new documents showing that the EPA is monitoring multiple peat operators in a bid to crack down on suspected unlicensed extraction. He then explained why complex rules and decades of inaction in tackling unlicensed activity have left the courtroom as the last avenue for change.
Founded in 1966, IBI has worked on some of the most high-profile deals in Irish corporate life. But why has it decided to sell to a Japanese-owned investment bank? How does it plan to grow and what does this mean for dealmaking in Ireland? Tom had the story.
Vehicles used by the US investment firm to purchase distressed Irish loans are reporting pressure from their own lenders and discounting the value of their portfolios, triggering various responses to the resulting profit squeeze. Thomas had the details.
The 13th edition of the Entrepreneur Experience, which matches emerging and seasoned entrepreneurs, took place in Cork last month. The network of entrepreneurs is extraordinary; so too is the trust between them. Tom went to the event and gave us a fascinating report.
