Ireland eats escrow over Apple’s tax bill
Earlier this month, the Irish government found itself on the wrong side of the European Commission because it had failed to collect €13 billion of illegal state aid from Apple. The EC decided to refer Ireland to the European Court of Justice for taking so long to try and recover the money.
The Irish government and Apple are still appealing the original decision by the EC that Ireland gave Apple an unfair advantage over competitors with sweetheart deals that allowed the manufacturer to pay minimal taxes on income from European sales funnelled through subsidiaries in this country.
The Irish government reacted strongly to the decision to refer it to the ECJ, but EU Competition commissioner Margrethe Vestager pointed out it had been given more than a year to take action and it had not reclaimed even a portion of the amount.
The government’s defence was that it expects to have collected the amount by March next year and is working on an escrow fund to hold the money until the appeals process is completed.
The Irish government’s opposition to the EC’s ruling in August last year has been implacable, despite the positive effects a €13 billion ‘windfall’ (a strange word to use for money that the ruling found should have been paid in the first place) could have on the Irish economy.
Still, perhaps the Irish government has a deeper understanding of the electorate and understands that, as I wrote last year, people in Ireland are “used to sleeping on trolleys; going to school in prefab classrooms; not being able to afford a house; living in B&Bs; or sleeping on the streets”. Plus ça change.
“I suspect they’re used to it in the same way Apple became used to paying less and less tax to the State,” I added. “According to the European Commission’s report, Apple’s tax rate in Ireland between 2003 and 2014 declined from 1% to 0.005%.”
Apple CEO Tim Cook’s open letter in the immediate aftermath of the ruling moaned that the company was “in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid”. The problem is that the issue wasn’t really about tax, it was about a contravention of the rules governing state aid which happened to centre on tax rates.
Cook added that Apple supported international tax reform but “changes should come about through the proper legislative process in which proposals are discussed among the leaders and citizens of the affected countries”. The irony is that the proposals for Apple’s deals in 1991 and 2007 may have been discussed “among the leaders” but they definitely weren’t made public knowledge. In any case, as a member of the EU Ireland is, like all the other member states, subject to the rules governing state aid.
Zero sum game
This whole process seems to me to be entirely self-destructive for the Irish government – and for Apple. Neither party emerges from this sorry saga with any credit. The government seems hell-bent on rejecting a huge sum of money which, according to the EC, is owed to Ireland and its people and is sparing no expense to ensure the country and its citizens never receive it. As for Apple, the decision to appeal could irredeemably tarnish the fluffy public image of a business that takes its corporate responsibilities to the planet and its citizens seriously.
What amazes me about this whole wretched saga is that Apple and the Irish government could have easily secured a very powerful public relations victory for both sides if they had accepted the original verdict in the first place. They would have avoided being seen as the bad guys fighting to keep money that, the EC ruled, was owed to Ireland and its people, and spending significant sums and time doing so.
After taking the money, the Irish government and Apple could have agreed to use some of the money for general government spending, to address the shortfall in the health budget for example, while setting aside a significant sum to fund an IT education and training institution – possibly with Apple name’s attached – to help address the skills shortage that is hindering so many companies in this country. They could have also funded an expansion in the places available at existing departments offering ICT courses at third level institutions.
Quite why no one in the Irish government or Apple thought it might be worth discussing accepting the verdict and making positive decisions on how to best use the money is beyond me. As it stands, they may be forced, begrudgingly, to accept the verdict after the appeals process is exhausted (which could take up to five years). Not only would they have lost the case, they would also have lost in the court of public opinion. Is it worth it?