With the resolution of Apple’s multi-billion pound quandary comes a resurgence of debates surrounding corporate tax policy, underpinned by elements of irony and contradiction. A fleeing of American multinationals to the shores of Ireland, driven by their desire to minimise their tax liability through the country’s relatively low corporation tax rate of 12.5%, has long been observed. Initially envisioned as a strategy to attract foreign businesses, this scheme has progressively evolved into a significant source of tax revenue for Ireland, as these corporations steadily refine their techniques to extract maximum benefit. Subsequent to a recent ruling by the European Court of Justice, Irish finance officials reported corporate tax earnings of €16 billion in the first two thirds of the year, even surpassing Apple’s forthcoming payment.
Simultaneously, Ireland has faced considerable scrutiny for the exploitation of its tax regulations by multinationals looking to substantially reduce their tax payment, in some instances to virtually nil. Although the country has adhered to international anti-tax avoidance conventions over time, the tax landscape is remarkably fluid. Corporate tax reforms from a decade ago brought an end to some illegitimate practices predominantly taking place in other economies, prompting companies to divert their gaze to the next most advantageous location – Ireland. This unforeseen twist since 2015, resulting from stringent global tax avoidance regulation, opposed initial expectations and surprisingly boosted the tax revenue generated from these corporations within Ireland.
Intriguingly, Apple’s situation singularity lies in the fact that, diverging from the common practice of maximising profit records in Ireland due to its favourable tax rate, the company had been consistently under-reporting its taxable revenue in the country through complex legal manoeuvres, leading to the triggering of the European Commission.
Robot vacuum cleaners and mops that retail for over €1,000 were put through their paces to see how well they performed with household cleaning tasks.
In other news, commentator David McWilliams pointed out the imbalanced development of Ireland, emphasizing the crucial role of Galway and Limerick in the nation’s future growth. This feeds into the ongoing controversy surrounding Apple’s Irish tax arrangements.
For a staggering 25 years, Apple was able to determine its own taxable profits in Ireland, thus evading tax on a significant part of its worldwide profits – a situation reflecting the audacity of Humpty Dumpty’s famous retort. The heart of this matter were Apple’s subsidiary companies based in Cork. These organisations had no physical offices or staff and resided in no particular region, thereby turning them into elusive entities similar to the Cheshire Cat’s vanishing smile. No physical entity: no taxable profits.
However, the court ruled that these operations should have been subject to tax in light of their tangible control over Apple’s intellectual property, the source of their profits. It turned out that the Irish operation was indeed a tangible entity, much like a visible feline, rather than just a mysterious smile.
The initial intention of simplifying tax assessment for Apple, which seemed sensible and pragmatic, was taken advantage of and transformed into a large-scale tax evasion mechanism, sheltering a major share of its worldwide profits. This arrangement was likely to draw legal scrutiny and would tarnish Ireland’s reputation, yet it appeared to catch ‘Official Ireland’ off-guard when the court’s final verdict was delivered.
This financial gain could have greatly benefited Ireland in 2010 when the country was in dire need of financial injection. However, Apple would never have routed such large quantities of its worldwide profits through Ireland if taxation wasn’t assured by the Revenue Commissioners. If these profits were deemed taxable, they would never have been channelled through the country. As expressed by Alice, the situation is ‘curiouser and curiouser’.
For those expecting immediate results, the prospect of Apple’s funds not being dispersed at once might come as a let-down. Is there an impending fiscal reaction akin to the White Queen’s decree of “jam tomorrow and jam yesterday – but never jam today”?
There is an apparent temptation for immediate tax cuts during a pre-election budget due to their direct political advantages. However, they overlook the extended time frame needed to establish the necessary infrastructure. Normally, budgets adhere to a hierarchy of needs with upholding creditworthiness being a primary one. Understandably, in the aftermath of the financial crisis, government spending was significantly restricted due to heavy indebtedness, much to the acknowledgement of the majority of citizens.
However, today, owing to ten years of particularly high corporate tax revenues, further supplemented by the windfall from Apple, and the decrease in real value brought about by inflation, the government’s debt ratio has diminished to around 72%, which is less than half of what it was a decade ago. Here, for context, the Apple money is comparable to about five percentage points.
With an assured creditworthiness, the focus now ascends the hierarchy to ensure that the budget management doesn’t incite an inflation in the economy, leading to escalating prices. Fortunately, fears of a price spiral are unfounded due to our reliance on the euro.
Yet, a fine balance exists between tax and expenditure, where the former, if reduced, could potentially cause an economic overheating, hence hindering further spending. This presents a clear dilemma for leaders especially during pre-election periods. Swift tax cuts hold obvious political benefits, but they’re not as favourable for long-term infrastructural planning.
In this context, a governmental succumbing to such short-term outlook would be regrettable, especially as they’ve promised otherwise. An economic structure that provides ample housing and improved infrastructure not only aligns with widespread public demand, but will also enable more revenue from lower tax rates in the future without propagating unequal distribution of resources.
Presently, the government’s most pressing challenge lies in orchestrating a multiyear, climate-conscious spending strategy. This will require rational priority selection, as well as ensuring better cost management than recent records suggest.
[Rewritten text based on Patrick Honohan’s tenure as the Governor of the Central Bank of Ireland from 2009 to 2015.]