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We Need To Talk About Apple: Two top Irish economists go head-to-head over the €13 billion

UCD Professor Moore McDowell says we have nothing to lose in appealing, while TCD Professor Brian Lucey says Ireland should let Apple fight its own battles.

pjimage (3) Source: Rollingnews.ie/PA

IT WAS AN unexpectedly large sum. The European Commission’s ruling this week that Apple was granted illegal state aid by Ireland to the tune of over €13 billion has sparked a trenchant defence by the Irish Government and a recall of the Dáil.

Yet how should Ireland respond? TheJournal.ie asked two prominent Irish economists about the decision, and the possible implications for Ireland’s relationship with the EU and our entire industrial strategy.

Should we appeal?

UCD Economics Professor Moore McDowell says we have nothing to lose in appealing the European Commission decision, although he admits it will bolster Apple’s case.

“First of all, Apple are going to appeal, and so there’s no question of us getting our hands on the money for four to six years.

Those who are rubbing their hands thinking they’re going to get their hot sticky little paws on €13 billion – there is no chance of that in the short run.

Brian Lucey, Professor of Finance at the School of Business in Trinity College Dublin, says Ireland should let Apple fight its own battles.

“It’s Apple’s problem, so let Apple appeal,” he told TheJournal.ie.

If they win fine, if they don’t, fine. I mean, I didn’t vote for Tim Cook. Nobody did.

“Yeah, there’s 5,000 people employed [by Apple] in Cork, but there’s 2 million people employed in the country. And they’re often short-term relatively low-wage jobs.”

Whether Ireland and Apple can win their joint appeal against €13 billion in back taxes being paid to the Irish exchequer is another thing, of course.

The Metropolitan Museum of Art Costume Institute Benefit Gala - New York Tim Cook and Laurene Powell at the Metropolitan Museum of Art in New York earlier this year. Source: AP/Press Association Images

Will we get the €13 billion?

McDowell says the decision is suspect, in that European Commissioner Margrethe Vestager was going beyond her competition brief in calling Apple’s tax arrangements state aid.

“The EC claims that this falls within the boundaries of state aid to a particular firm, which must harm some other firm,” he said.

So which other firm, which other competitor of Apple is being harmed? Can you name one? Because there isn’t one.

“She’s talking about fair and transcendent and uniform tax policy. That’s not the brief of the Competition Commissioner. What competition is affected by this?

Also, this 0.0005% number – how is that reached? Last year, Apple claim that they paid €400 million in Ireland. Now, did they or didn’t they?

“The denominator, I think, is worldwide profits of Apple. But the only thing that is relevant in Ireland is what is taxable in Ireland, not worldwide profits.”

Professor Brian Lucey said there were “at least three” other competitors of Apple back in 1991.

Of course there were competitors to Apple in 1991, what about all the other digital computer manufacturers, across the board?

“The Commission is questioning whether the structure was there so only Apple could use it. The process was through tax, but the outcome was a state aid issue. The state aid is the issue, not the tax issue.”

Belgium EU Apple European Union Competition Commissioner Margrethe Vestager speaking on Tuesday. Source: Virginia Mayo/PA

Other ‘bad’ Apples?

The magnitude of the money involved has concentrated Irish minds on whether there are other ‘Apples’ out there, and whether Ireland’s entire FDI strategy is now under threat.

“That’s a very good question,” McDowell says.

What about Big Pharma?  They’re producing lots of little Viagra products down in Cork, in Ringaskiddy, and are sending them to other countries. It’s a joke, but true, if you want to get your Viagra, you get it in a little pillbox.

“The active ingredient, which it charges a high price for, is made down in Cork. So the Commission could now come in and say ‘let’s look at this as a common tax policy’, and look at where the sales of company are being made – in France, say – and tax them there.

“The Commission is claiming Revenue did special sweetheart deals with Apple only. In other words, this applies only to you, Mr Apple, and to nobody else – don’t say a word to anybody. It applies to only one firm.

But if, on the other hand, they were saying ‘here’s the tax law in Ireland, anyone can take advantage of it or not as the case may be – if Mr Pfizer and Mr Pernod Ricard wouldn’t get the same answer as to Apple, then it’s not state aid to a particular firm.

“In that case, it’s not favouring one over other, it’s just making it more attractive to locate in Ireland, and that’s what’s pissing off the Germans and the French.”

The moral argument

Professor Brian Lucey said: ”Is this the only one? I really don’t know.

“It really is interesting. I haven’t heard anyone say there is or there isn’t. The Commission say Apple are shuffling profits through Ireland, and it’s seen to be coming through Ireland.”

Pfizer Medivation Pfizer HQ in New York. Source: Mark Lennihan/PA

Regime

Minister for Public Expenditure Paschal Donohoe has claimed that Ireland is being forced to tax Apple’s global profits, in effect doing the job of a just international tax regime.

“Of course there should be an internationally agreed tax regime,” Professor Lucey added.

But there should be an internationally agreed regime on lots of things. That’d be nice.

“So of course there’s a moral issue, and if we’re not going to be part of the solution to the trillions of dollars that are flushing around the world from multinationals, then we’re part of the problem. So we should get on and do it.

“I mean, even Tim Cook was accepting there was an argument about the morality of the global tax regime.”

McDowell Moore McDowell. Source: Rollingnews.ie

Shirty

McDowell believes the moral idea of fairness is subjective, however.

“Personally, I don’t like seeing people being ripped off as much as the next man,” he said.

But when [Vestager] talks about fair taxation, your definition of fair taxation might be different from mine.

But surely people paying 40-50% tax in Ireland have every right to think that Apple should be taxed the 12.5% headline corporate tax rate?

“If I were in that position [of paying marginal tax rate of 50% as a sole trader], I’d feel very shirty about it, absolutely,” McDowell said. “I’m not disputing that.

But say we take the €13 billion and run, when the €13 billion has been spent, are you going to spend another €13 billion? This is a one-off.

On Friday, Minister for Finance Michael Noonan painted the European Commission decision as an attack on Ireland’s 12.5% tax regime, which Taoiseach Enda Kenny says featured in his first meeting with Ireland’s European partners after the 2011 election.

McDowell agrees, calling it a ‘second front’ on tax harmonisation.

“They tried to form a Common Corporate Tax Base, and ran into a brick wall,” he said.

Vestager is getting into the business of defining a Europe-wide tax policy. She is definitely supported by German and French politicians.

“She’s not on a solo run, but she’s using this as a device to, like Churchill, open up a second front… with a view to forming a common community tax base for corporation tax in the EU.

It’s the first step in having a single corporation tax across the community. That’s what the game is about.

McDowell added: “There are two forms of competition, between different firms within one country, and regime competition between countries, which is what the Germans and the French and the Commission are really concerned about.

“And it’s the 12.5%. They want to challenge it in general because it’s a threat to their own corporate taxes.”

EU referendum An EU flag in front of London's Big Ben. Source: PA

Absolute refusal

Professor Lucey believes Ireland should be playing the long game, in terms of getting on good terms with our European allies in the wake of Brexit, which is likely to rob Ireland of its main ally in London.

“We’ve kind of pissed off a lot of people in Europe in the way we’ve been dealing with tax,” Lucey said.

“The blunt, absolute refusal to engage in any discussion on the 12.5% corporate tax rate has, at best is being seen as fast and loose.

At its worst it’s seen as, you know, straight-up tax havening by our European partners. And we’re going to need our European partners to be on our side in post-Brexit negotiations.

“We’ve been able to shelter behind the UK in a lot of issues. We won’t be able to do that any more, we’ll have to stand on our own two feet.

“And we’ll find it’s a cold enough place if we keep cocking a snook at them. There’s a longer game here, and it’s not about if we squander it or whether there’ll be egg on our faces.”

Will foreign firms flee Ireland?

Central to the Government’s defence of its appeal has been the thousands of jobs – the precise amount is unclear – dependent on Foreign Direct Investment (FDI).

“I think that’s complete nonsense, Lucey adds. “First of all, this arrangement with Apple lapsed in 2013, 2014. And what has happened since then?

“Apple has launched a huge expansion of its business down in Cork. So this has nothing to do with Apple’s decision to continue what Cook called a 27-year-old relationship.

Brian Lucey Source: Brian Lucey

“All of the evidence on the decision of companies to engage in FDI suggests that there’s a constellation of issues, not just on tax.  We’re a pretty good place to do business, we’re in the common market, we’re English-speaking. It’s not an awful place to live.

Politicians have grown up with idea that only FDI will save us from the poorhouse. And they’re trapped in a rhetoric and a mindset that’s demonstrably false.

“We’ve been working on the basis that FDI is the only game in town for about 60 years now, but the real rise in national income in Ireland came in the early 90s, when Europe really got its single market cranking.

“They helped us with structural funds, but also that we had to cop on and govern ourselves properly, in terms of explaining where the money is going.”

Moore McDowell thinks Ireland has few advantages apart from its 12.5% corporation tax regime, however.

“If there was a single European corporation tax regime, then you have to ask yourself what advantages does Ireland have any more as a location for industry?

Speaking English won’t help you sell pills in Paris. Would it destroy us? We were here before they thought up the 12.5% and I’m sure we’ll be here after it.

“But the reputation of Ireland as being a place where you can do business…. would be certainly dented.”

Read: ‘We stand fully behind our corporation tax regime’: Government to appeal Apple ruling

Read: FactCheck: How many people actually work for foreign companies in Ireland?

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