Why are [some] Irish politicians so reluctant to take Vestager’s €13 Billion and run?

Margrethe VestagerSo today should be interesting in Dublin. It should be a make your mind up day for the Irish Cabinet to decide on whether Ireland should, as a member state, challenge Tuesday’s ruling of European Commissioner for Competition Margrethe Vestager.

It could fall in several ways. It may force the government to assemble a water tight argument on the politically embarrassing tax justice issues involved in launching an appeal, or perhaps defer the pain by looking to the court to seek clarification rather than a full on appeal.

But the opposition is unlikely to be in a mood for compromises.

Sinn Fein has set aside all mentions of sovereignty, and is going all out on the tax justice issue, frantically making hay with the ‘sweetheart deal‘ question from Paschal Sheehy’s epic interview with Tim Cook yesterday on Morning Ireland.

Fianna Fail is playing it more cautiously: not surprisingly given the deal originates in their period of government. But McGrath’s statement that “it is vital we have a corporation tax regime that is built on certainty”, was echoed in Tim Cook’s line about a need for consistency.

As I mentioned the other day, the whole thing is very awkward for Ireland, now effectively in the middle of a fight between the European Commission, the United States and Apple itself, which has been holding out for another US tax holiday before bringing home its global cash.

So why are FG, and FF in particular, being so stubborn in pushing back on a big free payment of cash money?

One is they don’t think Vestager’s €13 Billion figure will ever be paid directly to Ireland. Indeed, she quite specifically notes that:

If other countries were to require Apple to pay more tax on profits of the two companies over the same period under their national taxation rules, this would reduce the amount to be recovered by Ireland. [Emphasis added]

Instead, they view Vestager’s offer as a carrot on the end of a stick in order to lure the earnest and the gullible but which in the event of a Commission win will be withdrawn and the stick used to punish the Irish for being too clever with taxes for their own good.

Secondly, the cash sum even if it is paid out in full into Ireland’s current account (without the usual restriction that windfall payments be used to pay down debt rather than invested) it can’t be as valuable as an actual FDI presence and ongoing investment.

Jim Tankersley in the Washington Post:

There are two big issues here, for policymakers at every level of government. One is about companies that don’t have much leverage: small businesses or businesses that only exist in an entrepreneur’s mind. Those companies are the losers when big companies are taxed lower than everyone else. That’s a key argument European officials made in targeting Apple.

The other issue, though, is transparent incentives. Existing companies rationally want to minimize their tax bills, and lawmakers rationally want to maximize economic growth in their areas. Those forces push toward better and better tax deals for the biggest companies. They are the reason Ireland’s relationship with Apple is worth $220,000 per job, if the alternative is no jobs and no investment.

So long as companies have that much leverage, the math will keep working in their favor. [Emphasis added]

I’d add, that if you go right back to 1980 and the decision to site Apple in a Cork that was then a very poor second to Dublin in terms of suitability for the kind of inward investment the city now enjoys, it has been a rare transformative cross-generational experience.

Being seen to be on the wrong side of a tax justice question is hard, and especially hard for the government’s independent Minister’s some of whom have careers built on fighting the local effects of ill-distribution of wealth and resources within the Irish state.

But, then again, they are no longer just fighting for the Parish. If the cabinet fails to agree, the opposition in Leinster House will begin preparing for a second general election well within the year. That might be just enough to concentrate minds.

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  • In the past it might seem odd that SF has such little care for Irish Sovereignty, but the #Brexit campaign showed that has long been ditched as an underlying principle of its version of Irish Republicanism. This a useful guide to the meaning of the ruling http://www.adamsmith.org/blog/five-things-to-know-about-the-eus-apple-tax-ruling

  • mickfealty

    Thanks TD. There’s a crucial line in point two:

    “The fact that Apple was utilizing a uniqueness in Ireland’s tax law does not equal state aid.”

    SF have assumed this will help them win their golden ticket to get them into the Wonka factory of government, but it’s based on a highly questionable blurring of boundaries.

    If this doesn’t endure, the whole basis of the Commissioner’s activism (I’d call it adventurism) is null and void. The Irish state would be crazy not to push this to a clear conclusion one way, or the other.

    Interesting thoughts on the same line from Neelie Kroes, former Competition Commissioner: https://goo.gl/9zHjjs.

  • T.E.Lawrence

    Maybe time for Dublin / London/ Washington to talk about an internal agreement outside the control of EU ?

  • mickfealty

    That would be quite out of order, for now at least.

  • Declan Doyle

    The commission ruling has no baring on ‘sovereignty’ it centres around unfair state aid in the context of eu rules. SF have made it clear over the last few years that they are somewhat comfortable with the pooling of sovereignty across the EU. They are warmer to the overall project as their ranks are now swollen with members who are not restricted by outdated socialist prism or gene pool inheritance. They are thankfully euro critical and long may it last.

  • hgreen

    Why are [some] Irish politicians so reluctant to take Vestager’s €13 Billion and run? Because many thick politicians think that the phrase “business friendly” means slashing business taxes and letting businesses and corporations get away with whatever they like.

  • Jollyraj

    I think it’s their quaint sense of honour and square-dealing holding them back.

  • Anglo-Irish

    Allan Farrell TD answers this question in a letter in today’s Irish Times.

    http://www.irishtimes.com/opinion/letters/apple-and-ireland-13-billion-sweetheart-deals-and-tax-havens-1.2776141

    There is also the point that accepting the money would be accepting that the EU has control over a sovereign nations tax affairs, it hasn’t, and shouldn’t be encouraged in believing that it has.

    The EU oversees countries tax legislation and has no authority to impose tax legislation on any particular country, any EU decisions on tax matters require unanimous agreement by all member governments.

    https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwiascTy8vDOAhUlJ8AKHVpVDGYQFgglMAA&url=https%3A%2F%2Feuropa.eu%2Feuropean-union%2Ftopics%2Ftaxation_en&usg=AFQjCNFw6iGFkFDP_YW5OgxtccGv6WiivQ

    Apple revealed back in 2013 that 84% of its non-US income was registered through an Irish company.

    Every interested party knew this and there was no overt complaints from the British, or anyone else as far as I know.

    Considering the ‘ smoke and mirrors ‘ that takes place in The Square Mile as regards tax, Britain might well decide to keep a low profile on this one.

  • Megatron

    And ignores the reality that apple is here (mostly) for the EU not the tax

  • Megatron

    I do think the government got the tone of its response wrong rather than the substance. The response should have been…
    respect commissions views….tax justice very important….we have removed this loophole…but we have to preserve Revenue independence and defend thier interpretation.
    Rather than jumping in with “eating the seed potatoes” nonsense

  • mickfealty

    To be fair, #Brexit was the first they were on the side of the EU in any referendum since 1972. Opportunity too much to resist I fear.

  • Declan Doyle

    Well it depends on whether you are a glass half full or half empty kinda guy. They picked the winning side from an Irish perspective which is all that counts for SF. They were not necessarily on the side of the EU, in fact the EU itself had little to do with their motivations. The other possibility is that they have grown up and have the sense to see what is best for the people, which is refreshing given the self serving corrupt chrap we have to put up with from FF et al.

  • mickfealty

    The publicity matters far more than winning I suspect. I also suspect, judging from their poor public performances in the NI debates, that they’re uncomfortable with positive advocacy in any referendum.

    Theyre playing this one purely for short term laughs (‘take the money, don’t open the box’), which will be long forgotten by the time the courts finally decide the outcome.

  • Declan Doyle

    Having a position matters far more than winning and they are in good company on the same side as the likes of Joseph Stiglitz. Either way, publicity will follow, at least this type of publicity distracts from the batch of tricky membership resignations in Cork and Antrim ( with another whopper on the way it seems).

    It’s very hard to see anything g but ‘poor public performances’ from those we have deemed as apponents forever and ever. However, a balanced eye will see plenty of skill in O’Muillear, O’Neill, Mary Lou, Doherty…… etc ad infinitum.

    Playing for laughs at a laughable scenario is wildly natural particularly when there is a chance it might steam on into the new year. Everything though is ultimately ‘short term’ depending on who is doing the measuring.

  • Brendan Heading

    Mick,

    To answer the question in the headline – the Irish state has to be seen standing up for the tax-related advice that it gave, most likely in good faith, to a company which invests within the state (that said, using the term “good faith” is problematic given that the Irish revenue commissioners appear to have collaborated with a corporation to assist it to get around its own tax laws – surely irregular in and of itself).

    There are a number of legal issues coming out of this. I’m reminded of the “comfort letters” scandal from a while back. A murder case was thrown out on the basis of an overriding principle, namely that the good word of the British government had to be seen to be upheld and could not be usurped by a court. In this case, Apple have received what was effectively a “comfort letter” but for unknown reasons the same legal principle does not apply.

    Another interesting aspect, which is not well understood, is the issue of exactly what these state aid rules are, and why it is legal, for example, for InvestNI to provide direct cash grants to certain companies investing in Northern Ireland. Stormont’s deal to provide a cash subsidy to United to run flights between Belfast and New York smell suspiciously like state aid to me; maybe this is the reason why the Executive have been cautious about releasing the terms of their deal with the airline.

    I’d have thought the EU would be on firmer ground if they prosecuted the Irish state itself for violating trade agreements around state aid, rather than insisting that Ireland break its own word to recover tax revenue that it does not want. The court hearings around all of this are going to be very interesting.

  • mickfealty

    6000 jobs in Cork is not laughable Declan.

  • Declan Doyle

    But the gullibility of those who have been tricked into believing that those jobs are under threat because of the EU ruling. Is indeed laughable.

  • mickfealty

    Who would that be?

  • Declan Doyle

    Whomever so believes

  • Brendan Heading

    This line of argument has been repeated a lot over the past few days, but it proceeds from the strawman that the EU is intervening in tax affairs. It isn’t – it’s enforcing treaty stipulations around state aid.

    When this goes to court, the question will not be about sovereignty; it will be about how state aid is defined.

  • Brendan Heading

    I’d like to understand what the connection is between 6000 jobs and Apple avoiding paying corporation tax. I’m sort of on Declan’s side of this argument. Ireland would be in a lot of trouble if the success of its economy were tied directly to the ability of large corporations to use the Irish state to avoid tax.

  • Anglo-Irish

    According to Allen Farrell TD ” Our tax code is based on a statutory footing, and the Revenue Commissioners strictly enforce our tax policy as passed by the Oireachtas, without deviation. As such it is not possible for them to offer a ” sweetheart deal ” to any company whatsoever “.

    I have no way of knowing, and no intention of finding out whether or not that statement is true, but if it is, it’s a reasonable defence/explanation.

    Either way the situation is probably going to get somewhat complicated.

    How do the EU intend to allocate profits to a particular jurisdiction?

    Apple has customers and shareholders worldwide.

    Was Apples profit earned in California where the product was designed?

    Or was the profit earned in China where it was manufactured?

    Alternatively, was the profit earned in the hundreds of thousands of world wide shops in hundreds of countries where the end product was bought and sold?

    At some stage in this saga, popcorn may be required.

  • mickfealty

    Maybe it’s an age thing Brendan. The longest time I spent in Cork was about three years before Apple landed (in Mayfield, home of the original Keano), and the last time was on the UCC campus about ten years ago.

    There’s absolutely no comparison between those two times/places. Putting Apple in Cork, when they could as easily have gone to Dublin, was inspired and transformative. If there was half as much generosity/vision in NI now, then we’d be half-way home already.

    Don’t like being the wrong side of any tax justice argument (really!), but I think Ireland had a result here. *Must* abide by any judgement (it will) but, in any case, it has to stand and fight this one not because there’s any imminent threat to local jobs but to the country’s reputation.

    Not least because the weaker aspects of this arrangement are historic and no longer in force.

  • mickfealty

    Brendan,

    Can’t really add to what I said earlier. But here’s Fergus O’Rourke, head of PWC in Dublin writing in the Irish Times today (http://goo.gl/WafEM6):

    Since the OECD process commenced in 2013, Ireland has been a leading participant in this debate, and has made changes to its regime where some other countries have not yet.

    But to be very clear, every country is out to maximise its own tax revenues and heighten the attractiveness of its own tax regime. Ireland is no different. Fair tax competition will continue to have a part in Ireland’s overall offering.

    Our reputation did take a hit this week and there is no escaping that. But this should not obscure the fact that the journey the Irish tax system is currently on of fair internationally-acceptable tax competition is the right one.

  • Brendan Heading

    I have no way of knowing, and no intention of finding out whether or not that statement is true, but if it is, it’s a reasonable defence/explanation.

    Unfortunately, it isn’t. Under oath, Tim Cook told a US Senate congressional committee in 2013 “As part of recruiting us, the Irish Government did give us a tax incentive agreement.”

    The confusion is understandable given that Cook more recently denied that there had been any agreement.

    How do the EU intend to allocate profits to a particular jurisdiction?

    It’s not for the EU to do this. Apple would have to restate its accounts for the past ten years and then the rules under the other jurisdictions would apply. I don’t know if this is even possible, as it would in effect be an admission of tax avoidance to those other jurisdictions

    There is a lot of muddying of the waters going on here. Nobody is disputing Apple’s right to book its profits through Ireland. Had it done so, and paid 12.5% Irish corporation tax on those profits, the EU would have had no case. The issue is the way Apple, in concert with the Irish government, booked the profits in such a way that almost no tax was due on them.

  • Brendan Heading

    I think you might have missed my point, Mick.

    It is not clear to me how the business case for employing 6000 workers in Ireland is directly connected to the ability of the same company to book its global profits through Ireland. I like to think, and I’m sure I’m at least partially right, that Apple are in Ireland because they get good value for money from their employees here. If Ireland couldn’t provide skilled workers Apple’s facilities could not exist – but they could still channel their profits through the country.

    There are large multinational corporations in Ireland that employ almost nobody within the state. Seagate is one that springs immediately to mind.

  • Anglo-Irish

    I was under the impression that the Irish government offered tax incentive agreements to virtually all foreign companies considering investing in Ireland if they believed that there would be an advantage in terms of jobs or income or both to the country.

    None of anyone elses business as far as I’m concerned and not exactly unique to the Irish government is it?

    https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwjVgvL83_XOAhUsCMAKHbdBDw0QFgglMAA&url=https%3A%2F%2Fwww.theguardian.com%2Ftechnology%2F2016%2Ffeb%2F04%2Fgoogle-uk-tax-deal-share-options-scheme&usg=AFQjCNF-oQa8HCJ0byPA4Wrx29fd2vMHMg

    As I said previously, the arrangement with Apple was common knowledge back in 2013 and no massive scandal erupted.

    It seems to me that the only embarrassment to Ireland here is if other foreign corporations consider that they have been short changed and demand a better deal.

    Ireland’s response will no doubt be that Apple is one of the worlds most profitable companies and if the companies in question can provide the same amount of jobs and income to the state they can have the deal.

  • Reader

    Anglo-Irish: None of anyone elses business as far as I’m concerned and not exactly unique to the Irish government is it?
    One if the rules of the EU club that’s all. If you don’t like the rules, consider leaving the club.
    As for your UK example. The EU would dearly love to put the boot into Google and the UK right now – give them a tip-off. If the EU decides to punish the UK by making Google give us a load of cash, the UK will be free to put things right with Google a couple of years down the line. That sort of freedom of action is not available to Ireland – Ireland needs to win the appeal.

  • Anglo-Irish

    Then hopefully it will.

    In addition to Apple itself Ireland has the US Treasury on its side.

    https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&cad=rja&uact=8&ved=0ahUKEwiGpJu7q_bOAhXmAMAKHR-wCKkQFghHMAY&url=http%3A%2F%2Fwww.businesspost.ie%2Fexplainer-the-apple-tax-arrangements-in-ireland%2F&usg=AFQjCNFKQbZ9jq8L9Zrr0fgdA3z3YV6efQ

    Ireland has been a bit of a poster boy for the EU in that it prospered under its membership, as the EU intended, and even after the balls up brought about by the greed of a relatively small group of individuals it bit the bullet and is well on the way to recovery.

    There is always the option for Ireland to follow the UK out of the EU.

    The EU must be aware that the relationship between the two countries is a bit of a love hate one, but relations have never been better and the connection between the two will outlast all other factors.

    It will remain close even in the event of a UI.

    The last thing the EU needs right now is another country to threaten to leave.

    No doubt that card will be hinted at if not actually played.

    It will be interesting to see how it pans out.

  • AntrimGael

    To answer the question; they won’t chase the money because the South is still largely a gombeen, brown envelope state which is in the business and habit of doing dodgy deals with the corporate world. From it’s inception the Free State has been run by a grubby, rabidly right wing, self serving cartel only interested in feathering the nests of the select few while the wider population has been controlled and kept in fear by a rotten media who serve the interests of this stinking Establishment. The Dublin government, the multi-nationals and media oligarchs scratch each others backs and do well out of this arrangement and the South won’t change this. The people there are sheep who are content with the status quo as they can’t think for themselves and they will just go BAAA and carry on slaving and suffering as they always have done.

  • mickfealty

    Apple will endure, no doubt about that. If the Commission’s judgement wins (as it might well), the money will be shredded and pushed right across Europe. If the courts accept it, so will Apple. And so will Ireland and, perhaps in that case, the most good and least damage will be done.

    If they reject it, then Apple has already been goaded into hurrying up their repatriation of monies to the US, and Ireland will have been seen by its foreign investors to have stood by its own legal code.

    It’s all further evidence of the shrinkage of politics: https://goo.gl/ApW5wC.

    The Republic owes a debt to the EU, and that’s reflected in the pro EU loyalty of the people. When this unwinds to its fullest extent, I genuinely hope that loyalty is not compromised by forcing Ireland to choose between the twin sources of its late prosperity.