Commentary by Ryan HILL
On Tuesday 30 August 2016, the European Commission ordered Ireland to begin proceedings to collect up to €13 billion in taxes. The ruling is the culmination of a three-year long inquiry into the legality of Apple’s tax deal with Ireland. Yesterday, that deal was deemed to be one which granted Apple an advantage over other companies and therefore violated EU law.
The Commission found that two tax rulings made in 1991 and 2007 granted to Apple by the Irish government allowed the company to pay an ‘effective corporate tax rate of 1 per cent on its European profits in 2003, down to 0.005 per cent in 2014’. This meant that in 2014, for every million euro gained in profit, Apple only paid €50 in taxes.
The ruling has, as expected, not been met well by Apple, the US, or even Ireland. The Apple case has long been derided in Washington DC, with the US government recently accusing the Commission of overstepping its jurisdiction and acting like a ‘supranational tax authority’. Apple CEO Tim Cook accused the Commission of overriding Irish law and disrupting the international tax system, while the Irish government issued a formal response insisting it had done nothing wrong. Both parties intend to appeal the decision.
To appeal what is essentially a potential €13 billion windfall is a decision which may seem bizarre. However, Ireland has long treasured its status as a low tax-base for international companies. Ireland’s headline corporate tax of 12.5 pc is already much lower than other EU member states, and has created hundreds of thousands of jobs. Ireland wishes to preserve this status. This is increasingly important in the months and years following Brexit. Any change to the UK’s access to the single market as a result of Brexit will affect Ireland the most out of any EU member state, as the trade between both islands amounts to €1 billion per week. Ireland hopes that increased FDI is one of the few advantages it can glean among the significant losses it stands to incur as a result of Brexit, and the country’s relatively low corporate tax rate is seen as a driver for FDI. Any negative perception of Ireland as an attractive base for EU operations resulting from the Apple ruling could harm its long-term economic prospects.
Ireland has two months and ten days to bring an appeal to the Court of Justice of the EU. The legal procedure will take years and, as it has no legal precedent, the ultimate decision is unclear. Nevertheless, a decision in favour of the Commission would tilt the balance of power on tax policy in Europe, as the Commission will have established itself as a referee of how domestic rules are implemented. Even if the decision goes against the Commission, the ruling itself has granted the institution a new face – it is apparently unwilling to give exceptions to powerful multinational corporations in the rule of EU law. It does however, also put Ireland in the difficult position of having to choose between one of two leanings – towards loyalty to the EU institutions, or towards retaining its attractiveness to foreign investors.
The decision by the Irish government to appeal the ruling is not unexpected, but has come under question on a national level as left-wing political parties such as Sinn Féin have urged the country to recoup the sum, which could be spent on projects such as public housing and the health service – both in need of further investment.
In the shorter term, the ruling threatens to cause ripples in the EU-US relations, as earlier this year the Senate finance committee urged the US Treasury Secretary to consider an increased tax rate on European companies if Apple was ordered to pay back taxes to Dublin. Strains in relations may filter down into the already troubled TTIP negotiations, whose desired deadline (the end of the year) is fast approaching.