In the European Court of Justice, a significant legal blow was delivered to both Apple and the Irish Government today over the Apple tax issue. The court sided with the European Commission’s 2016 verdict that Apple is required to pay Ireland a tax deficit of €13 billion for the period spanning 2003 to 2014.
The contention originated from two unique tax arrangements Ireland made with Apple in 1991 and 2007, which the Commission declared as unlawful State aid. The controversy pertains to how Apple distributed its revenue through its Irish entities, resulting in negligible tax on its worldwide profit.
This verdict had been the subject of several legal challenges and a lower European Court even indicated that the Commission’s case was loaded with errors and Apple wasn’t responsible for the financial obigation. Nevertheless, the European Court of Justice (ECJ) met these appeals with disagreement, rejected the defences presented by Apple and the Irish state, and pronounced that the payment must be completed. There is no additional course for appeals, effectively making it the end of the line. On this issue, Ireland simultaneously lost the case and gained the funds!
The question arises as to why the State initially didn’t covet the money. In 2016, Ireland backed Apple in refuting the European Commission’s ruling as they believed it would destabilise the Irish corporate tax framework, induce uncertainty for prominent US corporations based in Ireland and symbolised an excessive intrusion by the Commission into Ireland’s fiscal matters.
This stance sparked controversy as at that time the national treasury wasn’t as robust as now. The government’s rationale was that the case held importance for securing future US investments and receipts from corporation tax.
So does the State enjoys the monetary benefits? Yes. The funds, amounting to €13.8 billion and held in an escrow account since the preliminary verdict, are now scheduled to be transferred to Ireland. Further, the Government announced its intention to collect it.
However, a minor complication lies ahead. The original judgement by the European Commission implied that other EU countries in which Apple has conducted sales might lay a claim to a part of the windfall. It’s still a matter of conjecture if any such claims materialise.
The financial implications of this outcome for the Republic remain to be seen.
Despite depreciating in real-time value, the €13 billion remains a significant sum. To provide some perspective, the total expenditure for the state this year is approximately €100 billion, which includes the one-off payment from Apple. The revenue accounts for nearly half of the projected corporation tax for this year and about 6% of Ireland’s total outstanding national debt.
The government might choose to deposit this lump sum into one or both of the savings funds created this year for future purposes. One fund is long-term, and the other one allows quicker withdrawals to finance climate investments or sustain state investment spending under fiscal pressure.
As it’s a one-time cash injection, it’s anticipated that the government will confirm that the money will be invested into state projects either directly or via the funds. These sectors might include key infrastructure areas like housing, water, and energy.
Moreover, the political implications are noteworthy. The injection will amplify the political pressure on the Coalition to ramp up investments, with challenges not so much on funds but on swift delivery and project mobilisation. Politically, it will also inevitably factor into discussions regarding the forthcoming October budget, even though it’s a one-off receipt and should not be used to back ongoing spending or tax cuts.
In terms of foreign direct investments, the government asserts that the Apple judgement stems from a bygone issue. Despite adhering to international tax treaties and implementing new rules, including those pertinent to the judgement such as how companies distribute profits and pay taxes, the court’s decision that Ireland offered unlawful State aid to Apple is cause for embarrassment. Furthermore, it’s expected to reignite global scrutiny on the colossal tax payments of large US multinationals based here and their organisational structure.
Even though the tax systems leveraged by these businesses have undergone changes, the fundamental concern remains their international allocation of costs and profits, primarily concerning their intellectual property – the patents, copyrights and licences crucial to their operations.
Interestingly, it seems that the significant modifications to the international tax regulations—largely brought about from the original conflict surrounding Apple—ended up benefiting Ireland. Indications suggest that this year’s sizeable contributions from the said company are, once again, amongst the key drivers that have significantly pushed corporate tax revenues beyond anticipated targets.