A tale of two Europes: Ireland must get to core of Apple ruling

5 Sep 2016

Not to appeal the EU ruling on Apple would have endangered future investment in Ireland

Had Ireland decided not to appeal the €13bn EU tax ruling against Apple, it would have been a betrayal of the companies that gave the country a chance when we needed friends the most, writes John Kennedy.

No one likes a bully. Not even the bullies themselves, in truth. But no one sees a bully coming. At least until it is too late. Behind the flattery and initial friendship, it is hard to see the jealousy and resentment behind their eyes as they sniff out or wait for vulnerabilities. Inevitably, the mask slips, the undermining process begins, and the victim discovers all too late that they are all alone in a crowded room.

That’s how Ireland looked to me last week after the EU Commission revealed a landmark ruling that Ireland must collect €13bn tax, plus interest, from Apple. Ireland looked alone and lost and, from a height, the European Commission damned Ireland for allegedly flouting state aid rules.

‘Not to appeal the European Commission’s ruling would be a massive disservice to the hundreds of thousands of Irish people who gave multinationals a return on their investment and then some’

The ruling outlined by Competition Commissioner Margrethe Vestager is as big an existential threat to Ireland’s future as the fallout from Brexit.

At the core of the ruling may be jealousy around Ireland’s 12.5pc corporate tax rate and the country’s success at winning foreign direct investment.

But it wasn’t presented to the Irish people that way.

Instead, a €13bn carrot was dangled in front of the masses and a populist agenda was ignited to claim the windfall. It was as if Ireland had won the lottery. While Apple itself was resolute from the get-go that it would appeal the decision in the European courts, the €13bn carrot caused an already vulnerable cabinet to dither and delay before a decision to appeal was finally reached on Friday.

Was this by design? Are Ireland and Apple pawns in a wider game by the larger countries of Europe to achieve tax harmonisation? If this is the case, they are going about it in the wrong way.

Aside from the press statement, little is known yet about how, precisely, the European Commission arrived at its €13bn figure. In the same breath as dangling the €13bn carrot, the EU helpfully suggested that other countries in the EU and elsewhere could require the taxes be paid locally. Talk about a contradiction.

Picture a carrot dangling in front of a hungry beast of burden. The carrot was a complete misnomer. For now, the €13bn will sit in an escrow account while several years of court battles lie ahead.

But the carrot had already been seized by populist politicians who mistakenly thought it was free money to suddenly spend on urgent issues like Ireland’s broken health system, the housing crisis and a lot more.

Apple CEO Tim Cook dismissed the ruling as “maddening”, while both Cook and Ireland’s Finance Minister Michael Noonan TD pointed to how the figure made a mockery of sovereign tax laws – which individual states in the EU are entitled to – and agreements by retroactively applying taxes.

IDA Ireland chief executive Martin Shanahan insisted Ireland does not do tax deals.

For her part, Vestager denied the ruling was political.

But from the ground, it looks like it was a week of misinformation following months of misinformation. Irish officials believed that Vestager would not announce the ruling until after the Budget in October. Even though they were told it would be bad, they also believed that that the figure could be as low as €1bn. Noonan stated publicly that the money, if it exceeded €1bn, could only be used to repay the national debt. Oh, actually, that is not so, chimed in EU officials rather helpfully. But it would be good policy to do so, of course.

Once again, picture a carrot dangling in front of a donkey.

“Nothing happens by accident,” a seasoned civil servant murmured drily on Friday.

With friends like these …

Let’s be really honest and admit that, in all of this, Ireland has hardly covered itself with glory.

Until the previous government reluctantly shut down the so-called Double Irish, it was among a number of well-known tax avoidance schemes used by multinationals, along with others such as the Singapore Sling, the Double Irish Dutch Sandwich, the Bermuda Black Hole, and others.

Across the world, it is an acknowledged truth that multinationals do not pay enough taxes on their profits.

This is an issue that the United States government, and not only Europe, is keen to address.

And this is why Ireland appealing the European Commission’s €13bn ruling against Ireland is so critical.

It is about integrity.

If Ireland is to defend its 12.5pc corporate tax rate in the face of manoeuvering to harmonise corporate taxes across Europe, it must demonstrate how this is now above board and completely legal.

The 12.5pc tax rate is one of the few levers Ireland has to compete in the fast-moving world of foreign direct investment.

Yes, we have brilliant, highly-educated people. Yes, Ireland is a wonderful place to do business. Yes, there are strong cultural ties with North America. And, yes, with Britain about to Brexit the EU, our stance as the only English-speaking economy in the union and the Eurozone is pivotal.

It’s like a win-win, and that is also why the bigger countries of Europe are coming after us.

When the UK voted to leave the EU, we Irish were astonished. That’s because we appreciate the value of what Europe has done for us: the ability to travel freely across borders, vital science and technology investments through Horizon 2020, and a hell of a lot more.

And, yet, our loyalty to the European Experiment is being cynically tested.

In the years before Ireland joined the EU, it was an economic backwater dependent on agriculture and trade with the UK. In the 1960s, fed up with never-ending emigration and a struggling economy, Taoiseach Seán Lemass and, later, Jack Lynch along with senior public servants like TK Whitaker decided to shake things up. They embarked on making Ireland an open, global economy and made education free for everyone.

In 1973, approximately five decades after gaining independence from the UK, Ireland became a member of the EU – believe it or not, with the help of the UK. The most ardent opponent of Ireland joining the EU was Charles de Gaulle, president of France.

It appears this haughty attitude of bigger countries over smaller countries has never left the EU and, if anything, it appears to be getting worse.

I will never forget reading of the lonely feeling former finance minister, the late Brian Lenihan, described as he watched his airplane taxi to the gates at Brussels Airport in 2010 as snow fluttered outside the window. He was returning to Ireland having negotiated the terms of Ireland’s financial bailout and his back was to the wall. It was his job to tell the people the next day.

The contentious terms were that Ireland would shoulder an incongrous 42pc of Europe’s entire banking debt. Children not even born today in Ireland will still be paying for this, decades from now.

That was the price Ireland paid for not burning the bankers or bondholders. Iceland, which did so, is in rude economic health today.

Other small countries were punished for their temerity in trying to stand up to the EU – Cyprus had its banking system shuttered and chaos ensued. The Greek tragedy is still being played out and Greece is bearing the brunt of the human tragedy of the migration of Syrian refugees from their war-torn country.

Ironically, larger countries like Spain were able to negotiate a €100bn bailout on reasonable terms, while Italy is currently dealing with its financial crisis by subsidising its own banks from taxpayers’ money, which is against EU rules.

Accepting the unfair decision to shoulder 42pc of Europe’s banking debt, Ireland was widely lauded – even by multinatinals – for taking its medicine and the country is only now slowly returning to a growing economy.

US multinational investment overseas is at its peak. Europe is the go-to location because of its relative stability, and Ireland is capturing the lion’s share of this. No wonder the European overlords still aren’t happy.

Another Greek tragedy in the making?

In 1980, Ireland’s people were among the lowest paid in Europe, emigration was still rife and the country had a massive inferiority complex.

Around that time, a four-year-old US tech company called Apple took a chance on Ireland, locating its first overseas manufacturing site in Cork. 37 years later, some of the first employees of the company still work there and some 5,000 people (soon to grow to 6,000) work at Apple across Ireland.

In 1985, one of Apple’s biggest rivals, Microsoft, came a-callin’ to Dublin to manufacture software. It is still there, with over 1,200 people on book, and a new hi-tech campus being built in south Dublin.

In 1989, Intel came to Ireland to make chips to fuel the PC revolution of the 1990s. Intel is still in Leixlip, with over 4,000 people moving to the latest chip building processes.

In 2002, Google came to Dublin to create 80 jobs. Today it is Dublin’s biggest employer, with 6,000 people at work in the city.

In the years since Apple, thousands of US companies, as well as companies from Europe and Japan, have taken a chance on Ireland, and Ireland – thanks to the volume of big name tech companies based here – can rightly claim the title of Silicon Valley of Europe.

The truth is that every European capital would like to have Facebook headquarters. Dublin has already succeeded.

In the years that followed Apple, hundreds of thousands of Irish people have worked in multinationals, and many can be discovered in senior positions in Silicon Valley, Seattle, New York and elsewhere, thanks to their start achieving a highly prized job with a US multinational.

When I first started writing about technology in the 1990s, the plethora of jobs announcements laid the groundwork for the Tiger economy. This was great until people lost their heads on property. Back then, these investments weren’t known as foreign direct investment, but mobile investment.

They were called mobile investments because there was the inherent understanding that these investments could move if a more advantageous location presented itself, or if the business environment changed.

In recent weeks, eBay revealed it was closing its Dundalk operations with the loss of 150 jobs.

And this is why Ireland’s decision to appeal the European Commission ruling is so important. Investment is in constant movement. Organisations like the IDA need to keep bringing in new investors, and local arms of global giants need to evolve to stay alive.

There are currently 187,000 people at work in multinationals in Ireland today. For every one of these, there are at least two to three more people at work in the local economy because of the money the multinationals spend on everything from taxis and trucks, to loaves of bread or cartons of milk in the local supermarket.

By this logic, a considerable share of up to 1m people in Ireland depend on, or are some way supported, by multinationals.

The longevity of investments like those of Apple or Microsoft or Google or Intel in Ireland are not solely down to convenient tax arrangements. They are down to the hard work of local people and local management competing aggressively to win new responsibilities and evolve. Apple is no longer just manufacturing in Cork, it is the hub and spokes of a global wheel accounting for everything from legal, HR and finance to e-commerce, supply chain and, soon, data centres. Every single one if its highly-paid staff pay their taxes in Ireland.

Why we must appeal

Not to appeal the Commission’s ruling would be a massive disservice to the hundreds of thousands of Irish people who gave multinationals a return on their investment and then some.

Not to appeal the Commission’s ruling would be a betrayal of companies that took a chance on Ireland when we had very few friends willing to help.

Not to appeal the Commission’s ruling would be surrendering a corporate tax rate that is key to one of the few, unique things a country that missed out on the first industrial revolution had managed to create for itself in adverse circumstances.

Thanks to our so-called friends in Europe,, Ireland has shouldered 42pc of Europe’s banking debt. We have signed away the rights to fishing. We have signed away the rights to oil and gas. We have even signed away the rights of people to cut turf.

Failure to appeal this one last unique thing would have meant resetting the clock back to 1973.

Ireland was correct to ignore the €13bn carrot mischievously presented last week. But with a Budget looming and a Government on fragile ground, the damage may already have been done.

As a two-speed Europe emerges between big countries and small, it is time to bring the fight to Europe and show we will not be bullied any longer.

At the very least, an appeal will get the facts out in the open.

Comedy and tragedy image via Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years