Ireland And Apple Team Up Against EU Tax Ruling

A €14bn windfall – something most countries would fight to keep, not hand back. But that’s precisely what Ireland is doing. The money constitutes unpaid tax, the EU ruled in 2016, ordering the alleged culprit – tech giant Apple – to cough up. It was bad news for Ireland’s bid to be big business’s best friend, and now Dublin – alongside Apple – have commenced their appeal. Determined to defend its tax reform rights, the EU is set to fight its corner with vigour. 

The case focuses on two Apple subsidiaries – ‘Sales International’ and ‘Operations Europe’ – and their relationships with the Irish government. A supposed ‘sweetheart deal’ was brokered between the three, the European Commission argues, slashing Apple’s tax burden to as little as 0.005% in 2014. The agreement allowed Apple to attribute nearly all its European profits to an Irish head office that existed only on paper, contends the EU – breaching the bloc’s law.

A Celtic-Californian alliance of lawyers furiously dispute the claims, formally lodging their appeal at the European General Court on September 17. The 2016 decision “defied reality and common sense,” remarked Apple’s counsel, while the Irish argued that Europe had critically misunderstood the country’s tax arrangements. 

Dublin’s desire to overturn the ruling – and return the €14bn to Apple – is twofold. Firstly, the government wants to dispel any notion that the island nation is a tax haven, something the European Parliament claimed in March. Secondly, small in size and lacking an abundance of natural resources, Ireland’s prosperity relies on investment by large multinationals. Openness, predictability, and – most importantly – liberal regulation attracts foreign business – the EU’s decision could threaten that reputation. 

Then there is the issue of judicial independence. “A devastating blow to the sovereignty of EU member states,” is how Apple CEO Tim Cook described the Commission’s ruling. The Irish government agrees – Europe is overreaching in what is effectively a domestic matter. But Brussels isn’t without its own backers. Excoriating Ireland’s conduct on the eve of the appeal, Nobel laureate economist Joseph Stiglitz accused Dublin of conspiring “to get revenue that would have [otherwise] gone to other European countries”.

Such prodigious support will embolden the EU, whose ability to take on big business hangs in the balance. Margarethe Vestager, the bloc’s antitrust enforcer, has a reputation for taking on the mightiest multinationals. Under her direction, European authorities scalped Amazon for $270m in 2017, and have fined Google more than $9bn in recent years. Vestager’s assault on Silicon Valley earned her a typically Trumpian rebuke in June – “she hates the United States,” seethed the president.

The implications of her showdown with Ireland and Apple couldn’t be greater. If the appellants prevail, Europe’s ability to punish states for offering tax breaks to certain industries will be weakened. If they fail, Vestager’s steely approach will be vindicated, and her multinational crusade will continue (the likes of Ikea, Nike, Starbucks, and Fiat Chrysler are all facing EU litigation). It will also be a boon to plans for wider tax reform, which aim to restrict companies’ ability to ‘profit shift’ – the act of booking transnational earnings in a single, more tax-lenient country.         

Back in Ireland, some argue that the appeal should be scrapped and the windfall pocketed. Threatened by Brexit’s unprecedented economic uncertainty – not to mention the mounting risk of a global downturn – the nation could certainly benefit from a €14bn boost. Regardless, there is local optimism that the European court might rule in Ireland’s favour. 

“It would appear that Apple was taxed in Ireland in line with the substance of its Irish operations, before the Commission intervention,” says Peter Vale of Dublin-based law firm Grant Thornton. “From a distance, it seems that the Commission is attempting to rewrite historic tax rules based on today’s laws and mood”.

Either way, with further appeals in the pipeline, a definitive result is years away. It will be a nervy wait for the Irish. Google, Facebook, LinkedIn, Microsoft, and PayPal all have their European headquarters in the country. Apple alone employs 6,000 people in Cork, the island’s second-biggest city. A negative ruling will likely hit investment and job creation in Ireland – and perhaps even Europe as a whole. But the EU is undeterred. Preferential treatment in one state risks the financial fortunes of others, it maintains. Collective, equitable wealth is a cornerstone of the bloc – for that, it’s willing to fight.