US, not Ireland, facilitated Apple’s €13bn tax-avoidance structure

For the last decade and half, Ireland has been smeared as a tax haven, accused of facilitating wholesale corporate tax avoidance, even of robbing tax revenue from its neighbours.
The Court of Justice of the European Union’s (ECJ) tax ruling against Apple seemed to cement the notion that Ireland gave the iPhone giant sweetheart deals on tax in return for locating substantial investment here, which the European Commission, in a roundabout way, prosecuted as breaches of EU state aid rules.
This narrative is, however, a very partial interpretation of events.
Apple, like many of its tech peers, exploited anomalies not so much in the Irish tax system but in the US one, anomalies that have led to the offshoring of hundreds of billions in corporate profits that might have flowed into US tax coffers.
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The US tax code effectively allowed Apple, for tax purposes, to “disappear” its main offshore subsidiary.
The final element in this stratagem was to place a branch of that entity in a low-tax jurisdiction and to funnel global sales through it. This is where Ireland comes in but it was no more than a bit player in the much bigger game.
Perhaps the State’s main offence was to continue with the so-called “double Irish” structure that allowed companies be domiciled here while tax-resident elsewhere (Apple used a variation of it) for so long and then to allow those using it a rather lenient phasing-out period.
Former minister for finance Michael Noonan announced an end to the structure in 2015 but gave companies a transition period until the end of 2020.
But the “double Irish”, which became the focus of international criticism, was not set up as a tax wheeze.
Under traditional corporate tax residency rules, where a company is managed and controlled is a key distinction. If a company is incorporated in Ireland but managed and controlled elsewhere, it was regarded as tax-resident in that other jurisdiction, not Ireland. Hence Revenue, under its own rules, didn’t have jurisdiction to tax the bulk of Apple’s offshore profits.
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The concept of management and control as a determinant of corporate tax residence was not unique to Ireland. Many tax systems contained, and still contain, similar rules.
A central question remains as to whether Apple’s tax-avoidance strategies – and those of Google – were done with the connivance of US authorities, which might perhaps have been happy to see its brightest corporate stars prosper. Their schemes certainly went unchallenged for many years and despite a lot of recent grandstanding, most recently by former US president Donald Trump, it’s not obvious the situation has changed greatly.
Even the so-called Gilti tax rate – brought in by Trump in 2017 to target income from intellectual property such as copyrights, licences, patents and trademarks – is said to be too complex to administer and to suffer from compliance issues.
Ireland is not going to robustly defend itself in this global tax smash-up because to do so would be to impugn Washington, the biggest supplier of foreign direct investment (FDI) to these shores.
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Those who criticised the Government’s decision to side with Apple in appealing the commission’s case need a reality check. To have sided with the commission against Apple would have first meant accepting that Ireland was in breach of state aid rules and that Revenue had wrongly applied its own tax rules, raising competency issues.
That’s before you consider the implications of standing against the State’s biggest taxpayer and one of Ireland’s largest employers on the grounds that it was exploiting a loophole in the US system.
The unequivocal nature of the ECJ’s ruling caught most by surprise. Even the communications team around EU competition commissioner Margrethe Vestager were said to have prepared an entirely different press statement on the presumption that the ECJ would equivocate and kick the case back down to the lower court.
While many talked about the ruling being a “reputational headache” for Ireland, industry insiders insisted that in and of itself it was unlikely to affect FDI here. It also brought “closure” to a case that was threatening to run on and on.
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IDA chief executive Michael Lohan noted that while the judgment was historic, it was not being raised by client companies.
“Clients look to the certainty that is in Ireland, they look to the fact that we’re fully compliant from an OECD perspective and they’re looking forward,” he told the Dublin Economic Workshop in Wexford on Friday.
Of course he would say that. But the challenge for Ireland is not the intricacies of international tax, which, if anything, promise to deliver more corporate tax receipts as a minimum global rate kicks in and as various capital allowances run out. It is whether the State can continue to provide an attractive location for companies looking to invest, given its infrastructure shortfalls in housing, transport, energy and water and a woefully poor record in managing big projects.