Ireland’s finance minister is so angry that he’s willing to fight the
European Commission all the way through the courts for the right not to collect the taxes that Apple supposedly avoided over the last 12 years. Darn it, he’s already spent over 670,000 euros ($750,000) of taxpayers’ money in fighting the Commission. Why the ingratitude?
It’s not like his voters or his cabinet colleagues don’t want the
money. After six years of austerity imposed as part of Ireland’s 2010
bailout, Ireland’s public sector in particular is gasping for it.
Moreover, Noonan is going to get it in the neck from his rivals if he
doesn’t take the money. Pearse Doherty, the finance spokesman for Sinn
Fein, which preaches an idiosyncratic cocktail of nationalism and
left-wing populism, called on the government not to appeal the ruling,
telling the newspaper Anphoblacht:
“There’s an irony here when we see an Irish Government challenging the
European Commission when they actually bowed down to the same Commission
during the period of austerity and bank bailouts.”
“Many people will be mindful that they themselves will be taken
before an Irish Court because of their failure to pay water charges, yet
this same Government are willing to go to court to defend Apple,” Doherty said.
Sinn Fein would love it to be that simple. However, even its Marxist
old guard would probably have to accept that the ruling is a devastating
blow to a country that has thrived for decades on attracting foreign
investment through its favorable tax regime: the stock of foreign direct investment in Ireland at the end of 2014 was 311 billion euros ($350 billion), or 165% of GDP. Facebook and Google
and many others have their European headquarters in Ireland, due mainly
to its 12.5% headline rate of corporate income tax—the lowest in the
EU.
If Noonan now enforces the Commission’s ruling, it will send a
chilling message to other companies that have either invested in Ireland
in the past, or were thinking of doing so in the future.
Small wonder that Noonan told state broadcaster RTE that: “It is
important that we send a strong message that Ireland remains an
attractive and stable location of choice for long-term substantive
investment.” He said a challenge was needed “to defend the integrity of
our tax system, to provide tax certainty to business, and to challenge
the encroachment of the EU state aid rules.”
That second half of Noonan’s statement is important. For although the
Commission zeroed in on what it thought it to be a very specific abuse
of Ireland’s tax code, the Irish government is clearly afraid that this
ruling will be the thin end of a wedge that ends in its complete loss of
sovereignty over setting its own tax rates.
Until this year, such sovereignty hadn’t seemed in danger: after all,
the government had successfully resisted the attacks on its tax code
during the 2010 bailout negotiations, when it was at the mercy of France
and Germany. The two countries had the best opportunity in years to
stop Ireland luring away investment—and budget revenues—by “racing
others to the bottom.” At that time, the government of Taoiseach Enda
Kenny had successfully argued that its tax code was the only thing
keeping the Irish economy alive—and thus the only way the creditors
would ever see their 78 billion euros in bailout loans again (to say
nothing of another 130 billion euros and more lent to Irish banks by the
ECB at the height of the crisis).
But times change. And even though it happened years after the alleged
offense, the U.K.’s decision to leave the EU puts today’s ruling in an
entirely different light. As long as the U.K. was part of the EU, it was
a waste of everyone’s time and energy to even propose the greater
centralization of powers over tax in Brussels. With the Brits gone, the
Irish have lost their biggest protector. What was impossible becomes
possible (at least if France and Germany agree on an approach that
somehow suits them both, which admittedly remains a tall order).
The Commission’s press release itself contains a hint of where the first attack on Ireland’s tax sovereignty could come from.
“In fact, the tax treatment in Ireland enabled Apple to avoid taxation on almost all profits generated by sales of Apple products in the entire EU Single Market. This is due to Apple’s decision to record all sales in Ireland rather than in the countries where the products were sold. This structure is however outside the remit of EU state aid control. If other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland.”
In other words, the Commission is inviting other member states to
calculate how much they may have lost in tax revenue as a result of the
alleged violations, and to claw it back from Ireland. That alone is good
reason for Noonan to challenge the ruling. The last thing he or any
Irish government wants is to establish that kind of precedent.
At least Noonan’s Fine Gael party has some support from Fianna Fail,
the party that has ruled Ireland for most of the last century (perhaps
unsurprisingly, given that a string of Fianna Fail governments devised
and presided over the said scheme for years).
“The Commission has opened the door to other countries including the
U.S. to seek a slice of the 13 billion euros,” finance spokesman Michael McGrath said in a press statement. “It would be deeply unwise of Ireland to make any plans for funds that may not even materialize in reality.”
