It is this complexity, and the ability of multinationals to create corporate entities in several jurisdictions that provide significant opportunities for tax planning.
Corporate tax avoidance is a global problem which should be of interest to everyone because it involves issues of equality and social justice.
The OECD launched its Base Erosion and Profit Shifting Project (Bebs) report last year, while the EU launched its anti-tax avoidance measures earlier this year to address legal loopholes which are central to these activities.
Ireland is a signatory to the OECD Beps process. The reduction of tax revenues otherwise payable to governments across the world, affect public funding for schools, hospitals, roads and social services.
There are serious ethical issues regarding these activities.
Ireland has adopted a low corporate tax rate of 12.5% as part of a strategy to attract foreign multinationals to Ireland.
The EU Commission made it quite clear this week that its decision “does not call into question Ireland’s general tax system or its corporate tax rate”.
The US Federal corporate tax rate is 35%, which does not include state or local taxes. In June 2014, at an Enterprise Ireland event in San Francisco, California governor Jerry Brown made a jovial, but pointed statement, about Ireland Inc’s relationship with Apple.
“I don’t know how you got Apple to have so much of their business in Ireland, we thought they were a Californian company. When you look at their tax returns, they’re really an Irish company,” he quipped.
The commission’s finding that “Ireland gave illegal tax benefits to Apple worth up to €13bn” is not about the tax rate but about how profits from Apple’s European sales were considered for the purposes of taxation in the first place.
Apple recorded all profits from European sales in Ireland, but was permitted to allocate most of these profits to an offshore “head office”, outside of Ireland. The real issue is the location of those profits.
The focus of the EU Commission was the transfer of profits to “a head office” where they were left untaxed. Mr Cook said Apple had made provisions of several billion dollars, indicating these profits would be repatriated to the US next year.
The Cabinet decided to appeal the ruling to uphold “the integrity of our tax system”. A second issue is whether a state-aid ruling encroaches on a nation’s tax sovereignty, but this competency has been acknowledged by the commission. Any legitimate decisions made by the Revenue should be defended.
Whether Apple owes taxes to states within the EU or the US is a matter for Apple.
The grounds of appeal will be different. Apple’s complaint seems to be that the rules of the game have changed. Even if Ireland had decided not to appeal, it is unlikely €13bn would be repatriated to Ireland. It will be claimed by a number of states. Hence the US hostility to the commission’s decision.
Politicians have overtly connected job creation to the need to appeal against the decision. But the crux of the commission’s position is that Apple was treated preferentially, and so this is not a story about multinationals in Ireland generally.
Moreover, Apple’s continued investment in Ireland will serve to underline a genuine connection with the jurisdiction, both for tax purposes and in relation to access to European markets.
As Tony O’Reilly once said: “It’s not because the pubs are great, the golf is great and the climate is well… The fact is, it’s tax”.
Irene Lynch Fannon is a professor at the School of Law at University College Cork.