Taking the tax could help, not harm, foreign investment

International revenue agencies are already cracking down on multi-national tax avoidance, writes Stephen Donnelly, and Ireland must also play its part

FOR many companies across Ireland, Friday’s decision to appeal the Apple ruling must be intolerable. Irish companies typically pay 30pc tax on their profits, between corporation tax and withholding tax. Apple paid taxes on the profits it generated in Ireland, but the Commission found that on its European profits it paid just 0.005pc in 2014. Irish tax laws played a key role in this, and the most profitable company on earth had rulings from the Irish State confirming that what it was doing was entirely in compliance with our laws.

Why would Ireland knowingly facilitate tax-avoidance on this scale? And why would Ireland’s Government, with the country still reeling from the economic crash, go to court to try and turn away the billions of euro Apple is being told by the EU Commission it must pay?

On the day of the ruling, Minister Noonan provided RTE’s Brian Dobson with four reasons, and these have remained the Government’s line all week. At least three of the four appear spurious. The first is that officials from Revenue had done nothing illegal, and that the Government would stand by its officials. I note that Revenue officials don’t write tax law, they implement it. If it does turn out via the appeal that Irish tax law really did fall foul of European competition and more particularly state-aid law, then that’s on our legislators and Attorneys General, not the officials from Revenue.

The second reason given is that not appealing the ruling could damage foreign direct investment. It’s difficult to see how this claim stacks up. The Commission ruling applies to a single company, and to a tax-avoidance mechanism that Minister Noonan himself closed off in a recent Finance Act. So it doesn’t apply to any future taxes, for companies thinking of coming here.

On top of this, Ireland is signed up to international efforts to curb tax avoidance. This is being run by the OECD and goes by the catchy title of Base Erosion and Profit Shifting, or ‘BEPS’. The principle being pursued, supported by Ireland, the US and the EU, is this: Tax on profit should be paid in the countries where the value is created that leads to that profit. So regardless of the Commission’s ruling, or any appeal by the Government, tax law in Ireland and around the world is changing, as part of an important global effort to crack down on multinational tax-avoidance. So it’s hard to see how does the Irish State put foreign direct investment at risk by not appealing the decision. Apple itself has committed to significant new investment and job creation in Ireland.

Rather than harming foreign investment, taking the Apple taxes could help it. By the time other European countries have sought their slice of the €13bn plus interest, there may well be only a few billion left for Ireland, but you can do a lot with a few billion in infrastructure, public services, housing and reducing the costs of living and doing business.

The third reason being offered by the Government is that not taking an appeal could harm US-Irish diplomatic relations. President Obama’s spokesman, Josh Earnest, suggested that the US taxpayer would ultimately foot the bill if Apple’s taxes were paid to Ireland. Minister Noonan explained that Apple would, in return for paying the €13bn, get a €13bn tax credit which it could take to the US Treasury. But if the Commission’s ruling applies to profits Apple didn’t declare in the US, or anywhere else, then it’s hard to see how this could be the case. Perhaps if the US declared a tax amnesty at some point in the future, Apple might decide to bring these profits home to California. But even then, Ireland could reasonably point out that it was a European, rather than an Irish, ruling that caused this. And let’s be clear, US tax law is every bit as culpable in this as ours — the faux outrage from across the pond should be recognised as such.

While three of the four reasons being offered for the appeal are vacuous or weak, the fourth reason does require careful consideration. The claim here is that not appealing the Commission’s decision threatens our 12.5pc corporation tax rate. This rate is without doubt an important component of our foreign direct investment success over many years, so any such threat must be examined — because while many in Ireland might like the rate, many in Europe do not.

In Berlin a few years back, I debated Ireland’s bailout with a member of the German parliament. Both he and the audience were largely sympathetic to Ireland’s woes. I argued that there needed to be burden-sharing on the costs Ireland had incurred propping up Europe’s banking system. My counterpart’s reply was that Germany should indeed consider supporting Ireland in this call, but only if we agreed to talks on increasing our 12.5pc. The audience agreed.

While our European neighbours might not like our tax rate, there’s never been anything they could do about it, as taxation is clearly covered in the European treaties as within the competence of each member State. The fear is that the Commission’s ruling, should we accept it, creates a precedent whereby Europe could, after all, meddle in our tax affairs. The Commission insisted last week that this fear is baseless, and reiterated that Ireland’s 12.5pc is none of their business.

Not good enough, says the Government, international investors need clarity. Fair enough, but does clarity require an appeal? MEP Marian Harkin says no, pointing out that Ireland could seek clarification from the European Court of Justice without an appeal, and get a ruling in less time.

Ireland could, however, lose out on corporation taxes if the EU changed, not our tax rate, but our tax regime — namely, what proportion of profits our 12.5pc could be applied to. For example, the Commission is keen to introduce something called the Common Consolidated Corporate Tax Base (CCCTB). It first proposed it in 2011, and Ireland flatly rejected it.

So here are the questions we need more detail on: What slice of the Apple €13bn plus interest is Ireland likely ever to get, factoring in the slices other European countries are already looking for? If we take our slice, are we making it easier for the EU to pull taxable profits from Ireland to other EU countries in the future? And if so, what’s that likely to cost us?

We don’t have answers to these questions, which is why no decision on an appeal should have been taken yet. The Dail should have been recalled, not to present a fait accompli, but to allow these issues be fully explored.

‘While many in Ireland might like the rate, many in Europe do not’