This week’s judgement relating to Apple seems to carry significant weight in the lengthy history of Ireland’s interactions with multinational corporations. Undoubtedly it’s of consequence, but the specifics as to why may take some time to uncover. The financial aspect is admittedly favourable. The ensuing debate has seen the €14 billion amount figuratively expended several times over.
Although the windfall presents a respectable enhancement, unlocking potential options for future investments, it doesn’t provide a game-changing volume of funds. Already, Ireland has profited from two Apple gains, housed within the National Treasury Management Agency’s cash reserves, is due to receive €10 billion by year-end in two newly created investment funds and operates with a healthy budget surplus.
Given that planning stages take several years to progress through, the claim that the Apple windfall will expedite investments ought to be approached with scepticism. For instance, a recent report by Mario Draghi, prior head of the European Central Bank (ECB), identified that it takes nine years to bring an onshore wind project to fruition in Ireland. This is contrasted with an EU average of six years.
The nation’s capacity to deliver in critical sectors like water supply, energy, housing and other infrastructures is being hindered by this absurd maze of bureaucracy. Some multinational firms are voicing their concern, following troubling experiences with high energy expenses and a flurry of uncertainties during their own planning processes. These perturbations have escalated over the past months, as per varying sources.
The relationship between Ireland and multinational companies is at a crucial crossroads. There’s a growing sentiment among corporations that Ireland might no longer be a favourable destination for novel investments, due to a lack of operational certainty. This hesitancy may be stemmed from previous experiences of incessant project delays. If the State can offer confidence in the tax sector, however, continues to invite debate.
The government is making attempts to downplay the recent European Court of Justice’s (ECJ) rulings, asserting that the rulings on Apple pertains to matters of the past and does not have any relevance in present circumstances. The pivotal concern lies in the intricate details of taxation laws and specifically whether Apple’s actions were distinct enough from other corporations to set it in a category of its own.
In 1991, Ireland’s Revenue and several prominent companies including Apple, underwent tax discussions which are now considered as historical events. The discussions occurred when the previous export sales relief scheme ended and a zero rate was proposed on foreign sales. Persistent arguments from Ireland are that no special concessions were granted, although the ECJ ruling contradicts this viewpoint in regards to Apple.
While these historic agreements may be put to rest, other companies have started consulting their legal and tax advisors on post 2014/15 tax structures.
The implications of the story might fade with time, however, the approach taken by the new European Commission remains to be seen. Despite past misdoings, Ireland can now claim to have adhered to the OECD tax agreement and implemented substantial transformations in taxation regulations. Nevertheless, historic misconduct could expose Ireland to some extent.
The delay in Ireland’s response to the Apple dispute that arose after 2013 resulted in the widely used double-Irish tax rules being phased out only by 2020 and the introduction of overly beneficial reliefs on intellectual property (IP) investment. This lack of foresight proved detrimental.
Paschal Donohoe, the finance minister since 2017, wisely spearheaded the move to align Irish regulations, including a rollback on IP reliefs, and ultimately committed to the fresh OECD corporate tax agreement.
Ireland harboured hopes that this would bring forth certainty for the future, despite it diminishing the appeal of tax as a competitive advantage. The objective was to divest Ireland of its tax refuge status and reintegrate it into the mainstream. The spotlight has, however, returned to the State. It’s uncertain to what degree Ireland is vulnerable to further past tax investigation but the ECJ ruling empowers the European Commission to do a thorough examination of national systems. How the new commission will use this power is yet to be seen.
The pressing issue for Irish ministers currently lies in resisting the continuous demand for uniform corporate tax across Europe, in what seems a never-ending struggle. The growing concern, strengthened by the Draghi report, is the suggested elimination of individual member states’ veto power on tax matters at EU level. Several EU counterparts have accused Ireland’s taxation policies of depriving them of revenue, and will unlikely hesitate to capitalise on this situation. This situation could create another layer of uncertainty in relation to Ireland’s future taxation policies.
Ireland must direct its attention to what it can manipulate amidst this scenario. Both the present government and the succeeding one must determine what proposition they have for investors. Notwithstanding weak areas, the strong foundation of US companies in Ireland coupled with EU membership offer tangible benefits. Significant projects are still being launched. However, what Ireland can promise investors is faced with challenges – decrepit infrastructure, a dire housing situation, and inadequate funding for higher education could compromise their appeal. The country’s taxation benefits are also diminishing. Added to this is the aftermath of the Apple ruling.
The sequence of events brings Ireland to a crucial junction with multinational corporations. The aim is to ensure that they don’t reach a decisive tipping point. Over the past ten years, investment has poured in extensively, but new competitors have now appeared from larger EU countries and, notably, the US itself, offering substantial financial incentives for strategic projects.
Regrettably, this is running in parallel with a cost pressure that is impacting multinational companies operating on lower margins in Ireland – some of which are facing economic slowdowns in overseas markets, including Germany. In this context, the ECB’s recent warning regarding stagnating eurozone growth is relevant.
Moreover, there are constraints to what Ireland can offer at present. Efforts to offer clean energy, top-quality education, plentiful water and so forth, don’t hold much weight anymore. However, the State has the capacity to address these concerns, particularly with an extra €14 billion soon to be available in the treasury. The pressing query from investors, though, is if Ireland has the capacity to follow through on its promises.