The European Commission concluded on Tuesday that Apple must pay the Irish government up to €13 billion (£11.1 billion; $14.5 billion) in back taxes.
That money could go towards Irish houses, roads, schools, hospitals, and countless other areas. So you’d be forgiven if you initially thought that the Irish government was happy about the prospect of adding €13 billion to its coffers.
But the reality is that Ireland’s finance minister, Michael Noonan, doesn’t want the money. He profoundly disagrees with the Commission’s verdict and he plans to appeal the decision in court.
There are a number of reasons why he doesn’t want the money:
- This is highly embarrassing for Ireland: The European Commission is accusing Ireland of giving Apple tax benefits that are illegal under EU state law. Breaking EU state law is not something Irish politicians want to put on their CV.
- Other companies in Ireland might get annoyed: If other businesses realise that Apple received preferential treatment and paid a lower tax rate than they did then the Irish government could face criticism.
- Apple could relocate its European HQ: If Apple is forced to pay €13 billion and ultimately more tax in Ireland then it could pull back on its Irish operations, leaving Apple employees in Ireland out of a job and taking GDP out of the economy. The company currently employs around 5,500 people in Cork and it’s just been given permission to expand its main campus in Cork so that it can hire an additional 1,000 people.
- Other tech giants could also abandon Ireland: Google, Microsoft, Amazon and several other US tech giants also have their European headquarters in Ireland. If Ireland is forced to increase its corporate tax rate and clamp down on tax avoidance then they too could start looking at other possible countries to relocate to.
Margrethe Vestager, the EU’s competition commissioner, concluded that Apple paid an effective corporate tax rate of 1% on its European profits in 2003 down to 0.005 per cent in 2014.
Following the announcement from the European Commission, Noonan told CNBC:”We stand by the legitimacy of what was done in the past. Nobody did a deal with Apple and we stand over that.
“Secondly, we think the Commission is getting involved in what is the competence of sovereign governments in Europe. The Europe treaties say that individual countries are responsible for taxation policy. And this is an approach through the back door, to try and influence tax policy, through competition law, and we don’t agree with that, but more importantly, we think they’re in breach of international tax practice, where tax liability follows economic activity, and the economic activity on which they’re raising the tax assessment in Ireland, did not occur in Ireland.”
He added in an official statement: “The decision leaves me with no choice but to seek Cabinet approval to appeal the decision before the European Courts. This is necessary to defend the integrity of our tax system; to provide tax certainty to business; and to challenge the encroachment of EU state aid rules into the sovereign Member State competence of taxation.
“It is important that we send a strong message that Ireland remains an attractive and stable location of choice for long-term substantive investment. Apple has been in Ireland since the 1980s and employs thousands of people in Cork. The company has continued to expand its operations in Ireland in recent times.”
A final decision on whether Apple will have to pay the back taxes is unlikely to come for several years, according to John Cassels, partner in the EU and competition team at European law firm Fieldfisher.
“We’re probably a number of years off anything happening: Ireland have said they will appeal and I’d expect it will take two or three years before we even get to a hearing, and then another couple for a result,” said Cassels.
“The European Commission can’t intervene with a member state’s general corporate tax rules — but they can arguably intervene when a country makes Advanced Pricing Agreements with a company, as Ireland did with Apple, as these can potentially undermine the single market.”