The wagons are being circled in Dublin as the signs grow that a final decision from the European Commission is due shortly in relation to Ireland's tax deals with Apple. There is no question but that the decision will be that Ireland offered the US giant illegal state aid. The question, however, is how much the commission will suggest Ireland has to raise from Apple, and how its final decision relates to Ireland's tax code today.
There is no question but that the decision will be negative and will, for a time at least, put Ireland in the firing line. Much will depend on the amount of cash involved. When the affair broke first, there were estimates from investment bank JP Morgan that the amount of back tax involved could be up to €19 billion, were the commission to decide to go back to shortly after Apple established here.
A bill of this size never looked likely, and the indications are that what is in prospect is only a fraction of this. However, this figure has been in circulation and featured in media reports so often since the preliminary negative decision from the commission in 2014 that it is inevitable that it will frame some of the reaction.
One issue for the commission and competition commissioner Margrethe Vestager is that a much lower figure may lead to accusations, rightly or wrongly, that political pressure from the US had an impact on the decision.
The length of time spent reaching a final decision also surely reflects the highly political nature of what has gone on behind the scenes. Sources in Dublin contend that the commission is on shaky legal ground – a case also made by the US treasury in a special White Paper on the subject of EU tax investigations into US companies, published last week.
Formula
In Dublin, the hope is that the final figure will be in the hundreds of millions, rather than the billions, but nerves remain on edge. Sources believe that the commission will come forward with a formula it believes the Revenue Commissioners here should use, and possibly an estimate of what it believes this should raise. Even a total in the low-single-figure billions would be hugely damaging for Ireland.
Either way, Ireland is likely to face a public relations hit, despite measures taken in recent years to start to close off some of the more aggressive tax loopholes used by Apple and a number of other multinationals to move profits earned in Europe through Ireland.
The controversial double-Irish tax scheme, for example, is being phased out by 2020 and a loophole used by Apple – which effectively moved cash through a company with no tax residency anywhere – was also closed off. Close attention will be paid to how the text of the judgments reflects on tax practices still in place here.
As well as the Government, Apple has been anticipating the decision. The US multinational has always pointed out that it has significant operations here which are vital to its wider European operations. It has ended the practice of moving cash through a “stateless” company and is believed to have moved the intellectual property rights for the sales of many of its key products into Ireland over the past year. Its tax bill for money moving through Ireland has risen. The Government will hope that Apple’s decision to move key intellectual property rights here is a sign of ongoing commitment to Ireland.
So the Government – and Apple – will both claim that they broke no laws, but will also indicate that policy and practice has changed in recent years.
This is unlikely to stop international criticism. As shown by the US treasury report, the American side says the commission may oblige Ireland to collect tax revenue at the expense of Washington. This neatly avoids a central issue, which is that the US way of taxing corporations lies behind much of the legal tax-avoidance structures.
US election campaign
Irish officials express some fears that the Apple case could get caught up in the US presidential election campaign, where multinational tax is a big issue. And, ironically, there may also be criticism from elsewhere in Europe. What is at issue is how Ireland taxes profits which, while they accrued to Apple subsidiaries here, related to product sales across Europe. Many other European countries may thus feel that the tax revenue is rightly theirs, rather than Ireland’s.
For all these reasons, the Government will feel obliged to appeal the decision. The bigger the amount of money involved, the trickier this may be politically, as pressure will come on the Government to collect the cash and spend it. Ministers will argue, however, that not appealing would be at the cost of inward investment in future.
Whatever the sum involved, sources here believe it will be a large figure, albeit one that is not financially significant for Apple. In response, Ministers will continue to insist Ireland did not offer Apple a special deal, and that our corporate tax system is open and transparent. In an era where corporate tax payments are a big issue, however, the Irish side will realise that this is now about damage limitation.
