Taxing times for Ireland as EU takes a bite out of Apple

29 Aug 2016

As Europe lands a tax judgment against Apple, Ireland must defend its industrial heritage at all costs

As the EU’s tax judgment looms, we must remember that Ireland’s relationship with Apple and other tech giants runs far deeper than mere taxes. Attempts to tarnish the nation’s industrial legacy must be defended against at all costs, writes John Kennedy.

In the coming days, the European Commission will level its judgment over Apple’s tax affairs in Ireland.

Rather than being hit with billions, various reports indicate that the final bill for Apple will likely be in the low billions or hundreds of millions of euro. This is much less than what even Apple anticipated. But for Apple, which has very deep coffers, and Ireland, which doesn’t actually have deep coffers at all, the damage is all about reputation and not cash.

‘If you ask me, a small country on the edge of Europe doing everything in its power to create jobs by offering a favourable tax rate is a far, far lesser evil than a pernicious European Union shouldering the same country with 42pc of Europe’s banking debt’

Future Human

This won’t be the end of the story. The money will reside in an escrow account while Ireland will appeal that it never offered Apple a special deal of any kind. Both Apple CEO Tim Cook and the country manager of Apple in Ireland Cathy Kearney have strenuously denied any sweetheart deal ever existed.

The saga could go on for months or years yet.

By the time the judgment is levelled, the damage might be done. But it is up to the people of Ireland and its industries, from tech to fintech and biotech, to determine how deep or lasting the damage will be.

Now, more than ever, the fight must be on to demonstrate that Ireland’s contribution to the success of companies like Apple, Google, Microsoft, Facebook and our fledgling start-ups is about more than taxes. It is about people and the story of a country on the edge of Europe with a small population that was revolutionised when Apple and others came to town.

But tell that to the hawks who, either locally or globally, are relishing the prospect of Ireland’s economic miracle of the last 40 years being besmirched and, of course, any chance to take a pop at a global brand name.

From the perspective of being on the ground in Ireland, what is really at the heart of the matter is the 12.5pc corporate tax rate that has been jealously eyed by inward investment rivals in Europe and globally. This is a rate that Ireland has defended and has vowed to continue to defend in the decades ahead. And rightly so, it is one of the few weapons we have.

The ability to defend this rate, however, will be sorely undermined by the UK’s impending Brexit from the EU. The UK was, believe it or not, an ally in defending the corporate tax rate because it had the common sense in this instance to see how a small island nation would need something to compete against larger industrial counterparts in Europe.

If you ask me, a small country on the edge of Europe doing everything in its power to create jobs by offering a favourable tax rate is a far, far lesser evil than a pernicious European Union shouldering the same country with 42pc of Europe’s banking debt.

The global context

The reality is that the investigation into Apple’s tax affairs in Ireland is in the broader context of an ongoing global war over corporate citizenship and where giant companies actually pay their taxes.

In the past year, the Commission has probed several companies over their tax arrangements in Europe, including Google, McDonald’s, Starbucks and Ikea, and it is keen to make examples.

In recent months, French authorities raided Google’s Paris offices over allegations the internet giant was involved in tax fraud and money laundering.

In the US, political leaders are unhappy at the reality that steadily for the last 30 or 40 years vital industries like car manufacturing and technology have been allowed to ebb away, turning industrial cities in America like Detroit into ghost towns.

Just watch Michael Moore’s groundbreaking film Roger & Me to see the social and economic impact of the loss of the car-making industries on his hometown of Flint, Michigan, when General Motors decided to leave the very city it was founded in.

But what has the US government done to stem to tide? Very little. And it is only now that members of the US congress are kicking up a storm.

Un-Corking an economic miracle

When the history books are written, the industrial heritage of cities like Cork will be owed to investments like those of Henry Ford in 1917 when he established a car manufacturing plant in the city. Sadly, it closed in 1984 with the loss of 800 jobs, and probably due to the same factors that saw Flint lose manufacturing operations to lower-cost economies like Mexico and those in Asia.

But just a few years earlier, around 1980, something interesting happened. A former hippy who still had a penchant for wearing sandals and listening to The Beatles and Bob Dylan was persuaded to establish the first overseas office for a then three-year-old start-up called Apple Computer in Cork.

Steve Jobs took a big chance on Cork, which he selected over rivals in Asia, and there are still people around who remember running into him in elevators where they had to rattle off all kinds of manufacturing details in response to probing questions.

A few years later, in 1985, Microsoft, also then just a start-up, came to Dublin to manufacture disks with Windows software as well as localise them for a global audience ahead of the PC boom.

In 1989, a Silicon Valley chip company called Intel opened its first office in Ireland in a former car showroom on the Long Mile Road. Within six years, its manufacturing plant in Leixlip would be producing one-third of the global supply of Pentium chips that were feeding the PC revolution that was in full swing at the time.

The fact that Apple is expanding with 1,000 new jobs in Cork on top of the existing 5,000 people it already employs there, regardless of any EU decision, has a lot more to do with people and their reliability than just taxes.

While some manufacturing still remains, the Apple operation at Holyhill in Cork manages Apple’s entire global supply chain as well as vital online and e-commerce operations. Irishman Niall O’Connor has been Apple’s chief information officer since 1997. Think on that for a moment, it is about expertise and experience, not just taxes.

In the 30 or more years since Microsoft established a manufacturing hub, it is now one of dozens of global software giants that manage their entire global cloud from Ireland and which has built a number of multi-billion-dollar data centres because of climate, location and connectivity, not just taxes.

And it is Irish teams at Intel in Leixlip who are leading the chip giant’s next foray into the world of the internet of things, devising new devices like the Galileo dev board and the Curie wearable chip, which was designed in Ireland.

A war of flux, a battle of design

The reality of industry in the 21st century is that it will be unlike anything experienced centuries gone by. As Irishman Liam Casey of PCH has pointed out “geography is history”.

Likewise, resting on laurels or tradition won’t cut it for survival. Just like Apple products are “designed in California” and made in China or Malaysia, countries need to mastermind evolution and roll with the changes.

Ireland, as described earlier, became quite good at this, largely thanks to a policy of IDA Ireland courting potential internet giants while they were still in start-up mode. In the 1990s, for example, the high-tech industries here were dominated by printed circuit board (PCB) manufacturing. Companies like PCH were created to serve demand as giants like Dell and others manufactured computer hardware.

In Ireland, that manufacturing industry disappeared in the first five years of the 21st century, as companies like Dell and others, and especially their workers in cities like Limerick, had to undergo a painful adjustment as manufacturing went elsewhere.

Like PCH, many became supply chain hubs, masterminding global distribution. But many pulled themselves up by the bootstraps with local management teams vying against other countries for new opportunities and responsibilities.

What came next was the cloud revolution. While less intense on human capital, it still requires vitally skilled people and that is a process of policy-making to produce new people with the skills, or repurpose, retrain or reorient experienced people to take these jobs.

Yes, aided by a 12.5pc tax rate, but with an uncanny ability to spot the changing tides, Ireland’s industrial story of the last 30 years has been all about change, but also an instinctive ability to roll with the changes. But fundamentally it is about people.

In 2002, Google came to Dublin to create 80 jobs. In 2016 it is the capital city’s biggest employer with 6,000 people on its payroll.

Likewise, in 2008 Facebook came to Dublin to also create around 80 jobs. Today, it employs around 1,500 people and growing.

Attempts to tarnish Ireland’s industrial and digital legacy because of the EU’s judgement against Apple must be resisted at all costs.

The ultimate decisions to locate in Ireland from the 1980s up to 2016 were made by decision makers in Silicon Valley, Seattle or New York and yes, let’s face it, lower taxes and other inducements were probably employed to land those deals.

But it was the hands and minds of people in Ireland over the last 30 or 40 years that made those investments stick, flourish and endure. Let’s not forget that.

Whether or not you agree with the judgment of the EU, do not forget the hard work and commitment of the thousands of people who worked at hundreds of different companies over the years and who put this country on the global industrial stage.

Apple image via Shutterstock

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