What has been hailed as a ‘victory’ for Ireland and Apple in the verdict of the EU’s General Court could turn out to be pyrrhic at best. Indeed, the biggest loser from this court decision could be Ireland’s tax-based FDI policy (Foreign Direct Investment), as EU countries step up their drive to end the multi-national manipulation of national tax codes.
You wouldn’t know it by the reaction here. The Irish branch of the American Chamber of Commerce said the decision would help the European Union as a whole to:
‘ . . . maintain its hard-won global reputation as an inward investment destination.’
Other EU countries would strongly disagree, especially as it is their tax bases that are being eroded.
Tax partner Peter Vale said:
‘From a distance, it seems that the commission originally attempted to rewrite historic tax rules based on current laws and mood.’
Mood? Global tax avoidance is not a mood. Nor is opposition to it.
KPMG’s head of tax, Tom Wood stated:
‘The initial indication is that it is a clear ruling in the taxpayer’s favour.’
Taxpayer’s favour? Which taxpayer? Domestic companies that cannot manipulate international tax rules? People who have to pay higher taxes to make up for the holes created by multinational tax avoidance?
Minister for Finance Paschal Donohoe has said Wednesday’s ruling should lead critics of the State’s corporation tax regime to
‘. . . reassess their view … and some of the statements that have been made about it.’
Does this include IMF research which has listed Ireland as a tax haven?
Brian Keegan of Chartered Accountants Ireland thought the court’s decision offers hope:
‘ . . . should curtail EU commission posturing on State aid . . . It is to be hoped that the commission will accept the decision of the General Court of the European Union, and not seek to damage the country’s reputation further with protracted legal proceedings.’
He shouldn’t be hopeful. The Commission has made it clear it will continue and accelerate its drive for tax justice. Up to now, Ireland could fall back on a blocking mechanism through the use of its national veto. The Commission’s strategy in the Apple case was to use state-aid as a means to clamping down on tax avoidance. This approach has failed (though it is only half-time). Regardless of an appeal, new approaches are being devised:
‘In what would amount to an unprecedented legal assault, the European Commission is exploring ways to trigger an unused treaty instrument to reduce multinationals’ ability to exploit highly advantageous corporate tax schemes. Crucially, unlike ordinary tax legislation in the EU, the initiative would only require the backing of a qualified majority of the EU’s 27 member states rather than unanimous support of all countries, restricting a government’s ability to wield a veto. The measure would also need approval from the European parliament . . . Officials [said] that the plans, under Article 116 of the EU’s treaty, were at a very early stage but would aim to identify certain competitive national tax schemes as distortions of the single market.’
‘The European Commission declared it was more determined than ever to clamp down on what it sees as unfairly low taxation rates used by some member states to attract multinational companies after losing its case against Apple and Ireland in an EU court.’
The report goes on to quote Valdis Dombrovskis (EU Commission Vice-President).
‘This ruling makes it even more urgent and more clear the need for corporate tax reform the largest corporations are getting away with paying 1 per cent maximum or in many cases less on their European profits. It’s just not sustainable from a tax fairness point of view, it’s not sustainable from a public revenues point of view, and it needs to be addressed and the commission is determined to address it. This one tax ruling is not going to change the commission’s determination in this regard.’
It remains to be seen whether using Article 116 to confront global tax avoidance is a runner, given that it has never been used that way. But that it is actively being considered shows the extent to which time is running out for Ireland. In truth, it was always just a matter of time. No one wins the global tax avoidance game. But some countries are slower losers than others. Ireland is a slow loser, but will still eventually lose.
So what is the progressive response? Donning an over-sized green jersey and burying our heads in it while chanting ‘we are not a tax haven, we are not a tax haven’ will not and should not suffice.
But we should also be cautious about the impact of EU Commission moves. Ireland is highly reliant (in some cases, over-reliant) on multi-nationals – for corporate tax revenue, personal tax revenue, high value-added employment, exports, etc. The fact is that tax justice would cost Ireland billions of Euros in tax revenue, and could undermine future employment and investment in our modern export base.
We need to accept the reality of a new regime which will hopefully reduce global tax avoidance while at the same time protect our economic interests. Even if Ireland is a tax haven, it is not a tax haven of the classical letter-box kind. There is productivity attached to our FDI.
We need to get ahead of the inevitable curve – staking out a model that protects our interests with apportionment formulae that emphasise our strengths in assets, labour and sales. This would help us protect our multi-national base.
But what we desperately need is a new FDI policy – one that emphasises economic and social infrastructure, skills and an accommodating immigration policy. A location with high rents, traffic congestion, low level of public amenities and an unwelcoming environment for migrants is not a place that will attract as much investment – either foreign or domestic.
The EU Commission may have stumbled in the General Court, but they have the capacity and certainly the determination to put Ireland’s FDI model to the test. Let’s hope they succeed. And let’s hope progressives can ultimately lead the country to a better FDI model – one that doesn’t rely on low tax rates and eroding the tax bases of other countries.
PS. Still, it would be nice to get our hands on the €13 billion.
Notes on the Front 
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