How to make Apple crumble

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The news that the Irish government is to appeal the European Commission’s ruling that it must collect €13 billion in unpaid back taxes from Apple seems like a particularly vicious Irish joke.

Ireland is a small country (population 4.8 million) where homelessness is at crisis levels. Waiting lists for housing are at record lengths since government-sponsored homebuilding largely collapsed after 2008, when the state bailed out the banks that had funded a huge property bubble. To make up the resulting shortfall in the public finances the last government imposed charges for water on the general population. Meanwhile hospital waiting lists have doubled over the past decade.

So one might imagine the government would grab the €13 billion owed with both hands. But almost the entire political establishment, including the depleted Irish Labour Party, backed the minority right wing Fine Gael government’s motion to appeal the EC ruling. It was passed in the Dáil (the Irish parliament) by 93 votes to 36.

The Taoiseach (prime minister), Enda Kenny, justified the decision to appeal as “the right of a small nation”. The vote and the bombast associated with it exposes in stark detail the Irish elite’s determination to cosset multinational companies at the expense of the welfare of ordinary citizens.

The EC ruling was a reaction to the fact that Irish tax pronouncements gave Apple “an undue advantage that is illegal under EU state aid rules”. Apple has two companies in Ireland — Apple Sales International (ASI) and Apple Operations Europe (AOE). The latter makes computers in a factory in Cork. The former buys Apple products from equipment manufacturers around the world and sells these products in Europe.

Apple set up its sales operations so that customers in Europe are contractually buying products from ASI in Ireland rather than from the shops that actually sell the products. In this way Apple recorded all EU sales, and the resulting profits, directly in Ireland. The “head offices” of both companies were not located in Ireland, but offshore. As such, they were regarded by the Irish Revenue Commissioners as non-tax-resident in Ireland. These “head offices” don’t have any employees or their own premises. Nevertheless, most of ASI’s and all of AOE’s profits were allocated to them.

The specific Irish tax pronouncements — which are no longer in force (though firms already benefiting have until 2020 to find another means of avoiding tax) — allowed Apple to avoid tax on most of its profits. As a result, in 2014 the effective tax rate on Apple’s profits in Ireland amounted to just 0.005 percent.

The EC decision doesn’t call into question Ireland’s tax system or its official corporate tax rate, which at 12.5 percent is one of the lowest in the EU. Only Bulgaria’s and Hungary’s are lower. So why is the Irish government so determined to appeal? Part of the answer lies in the fact that the government had already been forced by the EU to phase out the specific tax arrangements from which Apple benefited so much. However it wants to continue to be able to strike favourable deals with multinationals like Apple.

Jobs have also formed part of the rhetoric. Apple directly employs 3,000 people in Cork, and the government has tried to pretend that the EC decision threatens all foreign direct investment (FDI). But only 7 percent of the total workforce in Ireland work for foreign multinationals. Much of the FDI which so distorts the Irish economy (recent official growth figures appeared to show GDP rising by 26 percent in 2015) is in the form of “brass plates” on doors in Dublin’s International Financial Services Centre. And the recent GDP figures are linked to companies, including Apple, moving much of their intellectual property to Ireland in order to gain from a new round of tax breaks.

Ireland offers multinationals access to lucrative EU markets. Will merely applying the official tax rate force them to suddenly move elsewhere? Unlikely, but the Irish government is a craven supplicant of multinational capital and as such is trying to brazen it out. #

Vehement appeals to “the national interest” may have succeeded in pushing the Apple story onto the business pages. But they don’t seem to have convinced most Irish people, who don’t like the idea that the state allowed one of the world’s richest companies to evade tax, while at the same time it refuses to abolish detested water charges. Tens of thousands marched in Dublin on 17 September against these charges — despite them being suspended — and the demonstration also included a protest outside the Apple HQ.

The Apple case is an instance of the EU being forced by public opinion to act against the worst examples of tax avoidance. It isn’t opposed in principle to tax competition between states. For example, the UK’s corporate tax rate is currently 20 percent, but is set to drop to 18 percent by 2020. This could figure in the negotiations over Britain’s exit from the EU and as such, points to the potential for conflict between states over the issue.

However the Apple case clearly reveals the linkage between politics and economics, something our rulers would like to deny. As more people come to realise this, the possibility that they might question the entire system grows.