The language used by the EU competition commissioner in last week's announcement of Apple's potential tax liability may prove to be very telling for Ireland.
In her commentary, Margrethe Vestager said: "The European Commission has concluded that Ireland granted undue tax benefits of up to €13 billion to Apple. This is illegal under EU state aid rules, because it allowed Apple to pay substantially less tax than other businesses. Ireland must now recover the illegal aid."
The reference to "undue tax benefits" may be key. There is no such concept under the Irish legal system, whereas there is one under the civil law system prevalent on continental Europe.
There are two very different legal systems that apply in various EU countries – common law and civil law. Civil law, developed in Europe from Roman law, forms the basis of the law in continental Europe. Common law evolved in Britain and also applies in former British-ruled territories, including Ireland and the US.
These two systems produce radically different forms of legislation and its interpretation. Within the EU, only Ireland, Britain and Malta operate the common law.
EU directives and regulations, or more simply “law”, are heavily influenced by the civil law system, often making it difficult to incorporate into Irish, British or Maltese law.
These laws include long preambles that set out what the law is taking account of and what it is trying to achieve. The text of the law itself tends to be very simply worded because the interpretation is already made in the context of the intention set out in the preamble. All of this is very practical, but it is not how our common law operates.
Exact wording
In Ireland we have grown up with commonly used phrases such as “the law is an ass” and “obeying the letter of the law”. In a common law context, these phrases are often accurate. One will not be in trouble for doing something apparently “wrong” if it follows the exact wording of the law concerned. Equally, in some case the law can produce strange consequences that were not anticipated by legislators. Hence, it may be an ass.
At the time that Apple sought its rulings, a company could, quite legally (obeying the letter of the law), be registered in Ireland and – provided it was managed by a board outside Ireland – count for calculating Irish tax only activity that actually took place within Ireland. Indeed, many such companies had no Irish activity at all. This situation is no longer permitted.
Therefore, the Revenue Commissioners were only required (by the letter of the law) to collect tax on activities related to Irish sales, and this they did. The fact that EU requirements and the environment of cooperation between member states has evolved greatly since then should not force us to be judged by today’s standards for acts undertaken in the past.
Same answers
Irish Revenue can only operate within the law laid down at the time. I have no doubt that if questioned on the points raised by Apple at that time by another company, it would have given exactly the same response. On this basis, it cannot be said that Apple’s preferential treatment was a form of state aid. Anyone else asking the same questions would have received the same answers.
Indeed, in her interview Vestager made a reference that this consequence of the Irish tax law could not have been intended (ie the law was an ass). But that is irrelevant under our common law system.
If the law has an unintended consequence and the Oireachtas amends it, then it is not the function of the EU to disregard an Irish tax law – a matter on which we have sole competence under EU treaties.
While an Irish court can and frequently will make an interpretation of the statute law to achieve a fair outcome, it can’t ignore the plain meaning of it in order to right a so-called wrong caused by that law. It is up to our elected Oireachtas to consider it and change it if it sees fit.
Law integration
The UK has deployed significant resources of lawyers and other public servants to handle the integration of EU laws into their common law system. Ireland and Malta have sheltered in the slipstream of the huge British deployment of resource in this area. This will not be available after Brexit.
For Ireland, the danger of Brexit in this regard is that when the Apple case comes up for hearing in the EU General Court and, subsequently in the European Court of Justice, there may not be a judge with a common law background hearing it.
If not, will civil law judges apply the common law precepts to their analysis of what the Revenue Commissioners did under Irish tax law?
David Beattie is a former partner at Eversheds, where he advised on international transactions and cross-Border tax issues.