Cliff Taylor: Win or lose in European Courts, Apple case has hit us hard

I wouldn’t go spending your share of the €13 billion just yet. Who knows whether we will ever be able to download some or all of this money into our national accounts.

There will be a long legal delay, maybe five years or more, when the money will have to lie in some kind of holding account, pending a final verdict. Other countries may also claim a share of it.

But here's the thing: the damage has already been done to Ireland – and to Apple. Whether what happened was legal or not, Apple used Irish structures to pay very little tax on money earned outside the US over a prolonged period. Apple had companies that were tax-resident nowhere. One had made no tax return in five years. The court of international opinion will judge that it pushed this too far.

Did no one in Cupertino stop and think how it would look if this ever came out? And did anyone in officialdom here know about this stateless headquarters company which had a branch in Ireland?

Despite all this, you wonder if the European courts will stand over the European Commission decision. A layperson's view might suggest a strong chance that an appeal could win or that the courts would overturn whatever calculation the commission put in place to come up with the €13 billion figure.

On a common-sense view it is an argument that is hard to sustain. How could all Apple profits on sales outside Ireland be taxable in Ireland, when much of the economic activity was conducted elsewhere?

The legal appeals will determine, eventually, what if any cash the Irish exchequer might get. But in terms of public opinion, this is all irrelevant. Apple and Ireland have been declared guilty. Ireland’s reputation – for tax, for foreign direct investment and for business in general - has taken a huge hit. Foreign investors are ringing the IDA and the Government asking what’s going on.

Revenue guidance

The Irish line is that this is an issue confined to one company – and that in any case no illegal aid was given to Apple. As we report today, the European Commission’s competition arm did examine the files of some 300 companies here a year to 18 months ago. No further action followed.

This doesn’t mean the commission won’t move against other US companies here; just that we have no indication that they will.

Questions remain. What about other firms that received Revenue guidance on how their profits would be taxed? Can they now rely on these? Is our system bulletproof?

With Ireland appearing to be the special focus of the European Commission, the danger is that this could hurt the drive to attract foreign direct investment. We have always traded on the view that we have a legally based tax system offering certainty to investors. We have railed against the charge of being a “tax haven”. Whatever the legal niceties, this argument is now damaged.

International financial diplomacy is a brutal business. Governments, tax authorities and anyone who looked at the accounts of big companies have known for years that US companies were paying little tax on earnings in European markets and stashing the resulting cash offshore. Various US administrations have promised to change the US tax rules which allow this to happen, but none has done it.

Tax planning

European countries, including Ireland, have fought over US multinational jobs and offered tax regimes which allow this financial engineering. Alongside the companies offering jobs and real activity in Ireland, Luxembourg, the Netherlands or wherever else stood complex company structures allowing for this advanced “tax planning”.

The economic crash has changed everything, even if Apple and others were slow to wake up to this. Voters were mad and exchequers were short of cash. Hearings in the US and UK started to highlight just how tiny the tax bills were in many cases on profits earned outside the US market by the big multinationals.

Then Tim Cook and his senior executives walked into a US Senate committee and were presented with evidence of tax of less than 2 per cent on money moved through Irish operations. They didn't seem to realise that this would come back on them.

In the end it probably came down to the stateless companies. Apple had a few subsidiaries that were part of its Irish structure but were tax-resident nowhere. Irish tax law had allowed this to happen or rather hadn’t stopped it happening. This loophole has since been closed off. The European Commission saw this ultimate bit of offshore planning and went for it.

Win, lose or draw in court, the commission has hit its target. Some sources in Dublin believe that having done so, and with the Irish corporate tax structure changed over the past couple of years, the realpolitik of this is that the commission will not seek to probe other multinationals here. Time well tell.

For Ireland the fallout is toxic. Perhaps, in time, we might get a bit of the €13 billion to help compensate.But I wouldn’t bank on it.