After this week’s ruling in the European Court of Justice that Apple must pay the Irish State €13 billion in taxes, Kieran Allen explains how the Irish Government assisted Apple in avoiding tax and outlines some of the ways in which the Irish tax haven operates.
The judgement of the European Court of Justice on the Apple case points to the huge inequality in the Irish tax system. It also shows the lengths of which the Irish establishment go to protect their ‘reputation’ as a tax haven.
Approximately €10 million was spent in legal fees, mainly to conservative firms like Wiliam Fry, who received €3.2 million to argue why Apple did NOT owe us €13 billion. The same legal firm has received substantial funds from the Revenue Commissioners and NAMA. The Irish state will use any excuse to give money out to its corporate friends.
Support for the defence also came from the main political parties. In 2013, People Before Profit TD, Richard Boyd Barrett, asked that executives from Google, Microsoft and Apple be brought before the Dáil’s Joint Committee on Finance, Public Expenditure and Reform. Elected TDs, he asserted, should be able to ask these executives about their ‘aggressive tax practices’. His request was turned down, not just by Fianna Fáil and Fine Gael but also by the miserable Labour Party.
Today, the same party wants to discuss how the €13 billion should be spent. Yet at the time of the original investigation into Apple, ALL Labour TDs voted not to take the €13 billion and to pay for a legal appeal against the EU Commissioner’s judgement.
Most people get lost on the details of how Apple got away with paying just a 0.005% tax rate on its profits. But the story is comparatively simple
Apple first arrived in Hollyhill Cork in 1980 as a manufacturing facility. It was one of the last companies to benefit from the Export Sales Tax Relief scheme before it was abolished under EU pressure. This scheme guaranteed zero taxes to corporations making manufactured products for export. As it got in before the 1981 deadline, Apple was able to use the scheme to get a tax holiday for the next decade.
Private discussions regularly occur between big corporations and national tax-gathering agencies. These often result in Advance Pricing Agreements where the pretext is that a corporation wants ‘certainty’ on how much tax they might pay in future. During these discussions, Apple made up figures which they knew had no real basis and the Irish Revenue Commissioners just accepted them. For a comparison think of a PAYE worker who makes up some fantasy figures – and then being taxed at that rate.
The deal between Apple and the Revenue Commissioners lasted for decades, allowing Apple to get away with virtually no tax for 35 years. The EU Commission could only investigate a ten year period, from 2004 to 2014, and it concluded that ‘selective treatment allowed Apple to pay an effective corporation tax rate of 1 percent declining downwards to 0.005% in 2014’.
The scam that Apple used was a deliberately written loophole in Irish tax law. This distinguished between a company which was ‘incorporated’ in Ireland but not ‘tax resident’. As long as it was controlled from outside Ireland – meaning that if its Board of Directors met in another country – it did not have to pay tax.
The Apple scandal blew apart this absurd scam and so the Irish state was forced to re-organise. Enter Michael Noonan, the former Fine Gael Minister for Finance. In moves that were clearly choreographed with Apple, he announced a new, special reduced tax rate of 6.5% for profits from a ‘knowledge box’. These were derived from logos, intellectual property and other ‘intangible items’. He also increased capital allowance to 100% relief for those purchasing these nebulous, intangible items.
Let’s decode this for a moment. Let’s say a US corporation decided to ‘onshore’ its intellectual property in Ireland. It entered a notional price in its account books – let’s say a few hundred million or billion – for buying intellectual property from another wing of its own company. It could then write down this price from the puny 6.5% tax rate it was supposed to be charged.
Apple was delighted. This was a scam that offered endless possibilities for tax avoidance. Moreover, it was all legal and more ‘respectable’ looking than it would be to hide money in Caribbean islands like Bermuda or the Cayman Islands. The existence of a real economy outside of this glorified money-laundering has allowed Ireland to obscure, to an extent, the reality of the tax haven. So, Apple’s Irish company purchased Apple’s own intellectual property and then charged subsidiaries across the world for using it. Profits now appeared to flow into Ireland, even though these were often only based on intangible items.
This has given rise to the practice of ‘contract manufacturing’. An Irish pharmaceutical company asks another facility in a poor country to manufacture its drugs. It holds the Intellectual Property and ensures the product conforms to the regulatory standards of the EU. Profits are then ‘booked’ in Ireland – even though nothing was actually made here.
There is one disadvantage, however. It leads to a distortion of Irish economic statistics. In 2015, for example, the Irish economy ‘grew’ by 26%, an achievement that had never occurred before in recorded history. This arose mainly because of Apple booking its profits in Ireland.
The irony is that after the Apple scandal, the new methods for corporate tax avoidance have worked a treat for the Irish state. Where Apple went, other US corporations followed. A report from the EU Tax Observatory has noted that US corporations are among the highest users of tax havens. The Observatory estimates that 50% of their foreign profits are located in tax havens. And, yes, you guessed it, Ireland is near the top of the list of favourite locations.
The Observatory compared the amount of profit for each worker paid a wage. In Ireland, US firms make €6 in profits for every €1 paid to a worker. Local firms make only 50 cents. Even if we allow for higher levels of productivity, they could not be making 12 times as much profit. The only way this could be possible is if they are involved in a massive tax scam.
Some will argue, who cares? They might even add a nationalist tinge and argue that as we have suffered long enough, Ireland has the right to play along. There are two problems with this, however. Because of the artificially high, distorted growth of Irish GDP, the country has become a contributory rather than recipient of the EU budget. Since 2013, its contribution has grown by 50% and now amounts to nearly €3 billion a year.
Second, the price of kowtowing to US multinationals is an extreme neoliberal policy. Public services are miserable and so Irish workers must pay through the nose for childcare, wait inordinate time for hospital appointments and, of course, suffer a housing crisis.
Meanwhile Apple laughs all the way to the bank. At the time of the original judgement, it was worth $590 million. It is now worth €3.4 trillion and so even the huge sum of €13 billion is a pittance. It can thank Fianna Fáil, Fine Gael, the Labour Party and the Irish political establishment for the delay.
