Phone giant Apple and tax will likely loom large next year, but not in a way that some might suspect.
The arguments over illegal state-aid and the €13bn in back taxes which the EU’s Margrethe Vestager ruled that phone giant Apple owes this State will, thankfully, start to grind through European courts.
The drawn-out legal appeals process will provide some sort of relief from the public relations flack put up by the principal players which included a lot of the faux outrage over the Brussels’ ruling from the Government and Apple.
Much heat was generated last summer but, despite the size of the tax demand, markets were nonplussed. Shares in Apple — a behemoth valued at €593bn and which holds a remarkable cash hoard of over €200bn — have risen since Ms Vestager’s August decision.
Investors view a tax bill of €13bn as so much chump change for the world’s most valuable corporation, and the phone giant’s shares ended the year 10% higher.
There was also no market evidence that rock-bottom costs of borrowing for the Government here flickered at all, despite it committing to appealing a ruling that would have given it €13bn, an enormous windfall that would lop a significant chunk from the country’s debt pile.
For any state, never mind one that has so recently emerged from near bankruptcy, to turn down a sizeable bounty suggests that big issues are playing out behind the scenes.
As the Irish Examiner reported before the ruling, in April, there were signals that the Government had accepted it had lost Ms Vestager’s state aid investigation, but had anticipated a decision involving a much smaller fine, maybe one amounting to as little as €150m.
The Government nonetheless decided at this early stage to appeal any adverse ruling that implied the State had cut some sort of sweetheart deal with a multinational. Later, ministers and officials explained their decision to appeal the decision with comments about sovereignty and defending the State’s tax regime from Brussels’ bureaucrats.
Ireland and its tax dealings with US multinationals has not been alone in facing scrutiny from Ms Vestager’s probe. But the €13bn clawback from Apple ensured the unflattering international spotlight on Ireland’s tax dealings would not fade away, as had happened with other high-profile adverse EU rulings. Apple is box office after all.
Almost all the candidates in the race for the White House had slammed Ireland over so-called tax inversion deals. And it’s easy to forget that it wasn’t Brussels but Washington lawmakers who first drew up the allegations that Ireland had cut a too sweet deal with the most valuable company in the world.
A Senate sub-committee committee, in May 2013, claimed US taxpayers were losing billions of dollars in global revenues generated by Apple. The same hearing heard that Apple had paid next to nothing in tax on the global billions passing through two or three firms incorporated in Ireland.
The Senate committee’s investigation caught the Government on the hop. It was also to provide a handy roadmap for a newly installed Commission in Brussels to pursue its own investigations into tax arrangements of multinationals in Europe.
In the mix, too, are the renewed plans by commissioner tax czar Pierre Moscovici to revive the Common Consolidated Corporate Tax Base proposal, which even if adopted in a scaled-back version would call time on Ireland’s tax lure that includes the 12.5% rate and ‘knowledge box’ incentives.
Yet the Government has effectively a two-way bet in its appeal against the Commission’s encroachment: Launch the appeal and be seen to fight for a continuing flow of projects into Ireland at a time when the election of Donald Trump promises tougher times ahead for US investments in Europe; or after long years legal wrangling if it were to lose the appeal and collect a substantial windfall. But there is another tax issue involving Apple that TDs should probably pay more attention to.
In July this year, the CSO, through no fault of its own, had to revise Irish GDP growth figures for 2015 and following common Eurostat rules came up with the infamous 26.3% annual growth surge.
No normal advanced economy records enormous growth numbers. The revision led to the partly amusing, partly offensive jibe by Nobel economics laureate Paul Krugman of “leprechaun economics”. The Irish Examiner subsequently reported that Apple was the main driver behind the extraordinary revision, as it re-arranged its international tax affairs by transferring huge amounts of its intellectual property here.
Recently, the Irish Examiner reported Apple had communicated with the CSO last summer, reminding the Government agency of its confidentiality rules. Apple’s exercise was an accounting procedure but, presumably, involved contract manufacturing in China being counted as if it were done on Irish soil.
It will be revealing to see what happens to GDP figures here as Apple ramps up production of new phones in the future.
Apple’s accounting had another huge effect in widening the country’s tax base. Ask many senior economists and they will tell you that Apple was also the leading multinational that helped lead to the Government last year collecting €2.3bn more than anticipated in corporate tax revenues. But no Government minister or official will admit as much.
Next week, the Finance Department will release the 2016 tax returns which will show again that corporate tax revenues are taking in a huge haul. It’s time the secrecy surrounding this other Apple tax issue was lifted.
© Irish Examiner Ltd. All rights reserved