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Commission’s Apple decision and Brexit create new quandaries for Ireland     Print Email
By Brian Beary, Washington

 
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The decision by the European Commission to order tech giant Apple to pay $14.5 billion in back taxes to Ireland has brought unwanted attention to the country. It also closes the circle on a summer that began on a similarly unsettling note with the shock Brexit vote.
 
Apple, which has had a base in Ireland since 1980 and employs nearly 6,000 at its Cork offices, was deemed by the EU’s competition authority to have received illegal state aid worth €13 billion since the 1990s in the form of ‘sweetheart’ arrangements with tax authorities. EU competition commissioner Magrethe Vestager, announcing the decision on August 31 following a three-year probe, noted that Apple has paid as little as 0.005 percent in income tax on international profits routed via its Irish offices. 
 
Vestager has been publicly backed up by her boss, Commission President Jean-Claude Juncker, even though when he was Prime Minister of Luxembourg from 1995-2013, Juncker went along with many sweetheart tax deals given to companies based in Luxembourg. Also publicly supporting Vestager has been Ireland’s nominee on the EU Commission, Phil Hogan, who has the agriculture portfolio. Most of Hogan’s party colleagues in Ireland, meanwhile, are fulminating over the decision. As for Apple chief executive Tim Cook, he has lambasted the decision as “total political crap.”
 
Seen in isolation, it might seem a no-brainer that the Irish government should accept this de facto tax windfall, the largest ever awarded in such a case. But Ireland is viewing the case through a much larger prism. The tenor of the debate in Ireland underscores how much a small country can be willing to forego tax revenues from big multinationals if it feels the overall economic gain from having them based there is greater. 
 
In addition to Apple, Facebook and Google have bases in Ireland, drawn there largely by its ‘investor-friendly’ environment. Ireland for decades has attracted a disproportionately high share of U.S. investment when compared to its EU partners. According to the annually-produced statistical report produced by Johns Hopkins University’s Center for Transatlantic Relations, 20 percent of U.S. foreign direct investment (FDI) in Europe in the first nine months of 2015 went to Ireland. That made it the second largest recipient of U.S. FDI., wedged between the Netherlands, which attracted 31 percent, and the UK’s 18 percent. 
 
The Irish government announced days after Brussels’ decision that it would appeal it to the EU Court of Justice. It has two months to file such an appeal. However, the government must still collect the $14.5 billion and put it in an escrow account pending a final ruling, which could take several years. 
 
In framing its legal arguments, the government will likely direct fire at the retrospective nature of the decision, applying to revenues generated as far back as the early 1990s. Dublin will argue that Apple, in those years, complied with Irish law and with Irish tax authorities so it violates fundamental legal principles to impose a giant tax bill years later. It is also an unjust incursion into national sovereignty over tax affairs, the government will argue.
 
The Irish parliament held a debate on the Apple decision on September 7, having been recalled from its summer recess three weeks early to discuss the matter. Among the parliamentarians, the forces opposing the EC decision had the wind in their sails, with a motion to mount a legal challenge passing 93-36. 
 
Ireland’s government is led by the centrist Fine Gael party and contains a sprinkling of independent parliamentarians.  As the government lacks an overall majority, it is being propped up by the other main centrist party, Fianna Fail, which nevertheless remains outside of government, with no cabinet ministries. Comprising well over half the members of parliament between them, Fianna Fail and Fine Gael are strong advocates for mounting a legal challenge, as is the center-left Labor Party, the fourth largest in the 158-seat legislature.
 
The political party in the vanguard supporting the Vestager decision is the nationalist Sinn Fein which, with 23 members, is the third largest party. Sinn Fein is a rising force, having revived its political fortunes following the Northern Ireland peace agreements in the late 1990s, and more recently, having emerged at the vanguard of the Irish anti-austerity movement. The Greens and a grouping of anti-austerity independent parliamentarians are in the Sinn Fein camp on this issue. 
 
The Apple decision is capable of fanning the flames of euro-scepticism in Ireland. This is the second instance in the past decade that Ireland finds itself in the odd predicament of resisting pressure from the EU to take a large wad of money. Memories are fresh of the Irish banking crisis in 2010 when, largely due to the collapse of one bank, Anglo-Irish, France and Germany insisted it take a €64.5 billion EU-IMF bailout. There is a strong strain of thought in Ireland that this bailout was more about stabilizing the Eurozone, then in the throes of a confidence crisis, than meeting a specific fiscal need for Ireland.
 
And there is resentment over how then French President Nicolas Sarkozy tried to exploit the banking crisis by demanded that the Irish government increase the corporate income tax rate of 12.5 percent. This has been a longtime pet peeve of Paris, which feels such a low rate makes Ireland a tax paradise. Ireland successfully resisted Sarkozy’s call then and is equally adamant in the wake of the Apple decision that the 12.5 percent rate is untouchable. 
 
This controversy comes at the end of a tumultuous summer. The Brexit vote on June 23, when Brits voted 52-48 percent to leave the EU, caused a political earthquake in Ireland. No other country would be affected as much by Britain exiting the EU. While euro-sceptic sentiment in Ireland is significant and rising, the population remains on the whole committed to continued EU membership, in contrast to their British neighbors who are fairly evenly split. 
 
There is grave concern in Ireland about the potential for negative fallout in Ireland from a Brexit. For instance, if controls on the movement of goods and people between southern (independent) Ireland and Northern Ireland (still part of the UK) are introduced, it would be devastating for north-south trade. In the century-long history of an independent Irish state, there has been a free travel and trade area between north and south, the only blip being the Northern Ireland Troubles when security-motivated checks were erected. 
 
While Irish trade dependency on the UK has diminished since they both joined the EU in 1973, trade between the two nations still amounts to a billion euros a day. A Brexit brings the worrying prospect of border checks and import tariffs being imposed. There could, however, be positive effects too. The Irish financial services sector, for instance, will benefit if major international banks, currently based in The City of London, decide to relocate to Dublin to be able to continue to do euro-denominated trading.
 
Ireland’s economy has rebounded impressively from its economic bust of the late 2000s that came at the tail end of a decade of equally impressive growth, the so-called Celtic Tiger years. But the Apple dispute and Brexit crisis risk plunging the country back into political and economic turmoil. If this happens, expect Brussels to be at the receiving end of at least some of Irish ire.