Ireland is a laughing stock in the eyes of the world’s leading economists.
Nobel Prize-winning economist Paul Krugman coined the phrase “Leprechaun economics” at Ireland’s expense over our secret tax deals with multi nationals and allowing them to capitalise Irish registered holding companies and pay tax only on their capital assets at reduced rates.
It is complicated so I will try to explain in my own words and hope someone with better knowledge can confirm or reject by concerns.
In a bid to shore up struggling banks during Europe’s debt crisis, the European Commission in 2013 setup a Task Force on Tax Planning Practices, led by German attorney Max Lienemeyer and with a team of 15 international civil servants they pursued a three-year investigation throughout the EU which looked at the tax status of hundreds of companies, including Ireland’s Finance Ministry which led them all the way to Apple’s headquarters California.
They concluded that Ireland had allowed Apple to create stateless entities that effectively let it decide how much — or how little — tax it pays.
The investigators say the company channelled profits from dozens of countries through two Ireland-based units. In a system at least tacitly endorsed by Irish authorities, earnings were split, with the vast majority attributed to a “head office” with no employees and no specific home base — and therefore liable to no tax on any profits from sales outside Ireland. The U.S., meanwhile, didn’t tax the units because they were incorporated in Ireland and assumed tax was liable in Ireland at the 12.5% rate.
The EU has declared Ireland had broken European anti competition law (not tax law) by giving Apple a sweetheart deal. It ordered the country to bill the iPhone maker a record 13 billion euros ($13.9 billion) in back taxes, plus interest, from 2003 to 2014. One example the Commission cites: In 2011, a unit called Apple Sales International recorded profits of about 16 billion euros from sales outside the U.S. But only 50 million euros were considered taxable in Ireland, leaving 15.95 billion euros of profit untaxed.
Irish Finance Minister Michael Noonan has said he “profoundly disagrees” with the ruling and that Ireland strictly adheres to tax regulations. The government says Ireland has no right to tax non-resident companies for profits that come from activities outside the country.
This is based on the facts that the items in question (iPhones) clearly state they were designed in California, manufactured in China on the packaging and therefore any profits that accrued didn’t accrue in Ireland, and therefore should not have any tax liability is in Ireland.
And this is accurate, tax liability is only for products produced in Ireland and as there was no physical presence or any employees of these companies, there should be no tax to pay and it is up to the countries where they were sold to chase.
This has led to a grey area. The items were sold say in the US as being products of an Irish company which we now find out has no physical presence in Ireland, no employees and indeed the products never once set foot in Ireland. So, the question boils down to, are they really an Irish company or simply a ghost company.
If I setup a business in Ireland, and pay a designer in California to design a product, then outsource manufacturing to China and sell in the US, would I be liable for tax.
Well, let’s see. I would have to submit annual returns showing bank balances and records of sales both internal and outside Ireland so I would be legally compelled to show where tax was paid.
So how did Apple manage to get away with not paying tax anywhere and was it not obvious on their tax returns?
The truth is I don’t know.
So what are the consequences of this?
Well, according to international law, tax HAS to be paid SOMEWHERE and as Ireland doesn’t want it, the US are have led claim to the tax and will get it.
It has been deferred and already paid which is being held in account to be released at a future date pending the repatriation of these profits.
So was Ireland entitled to this money?
According to Mr Noonan, no. Though I don’t think he would say the same if I tried to do the exact same thing and that is the next problem.
This has now broken further laws, in the EU anti competition rules.
The only country Apple paid any tax to was Ireland, and so Ireland was demanded to take 13 billion in tax avoidance penalties with interest based on anti-competitiveness breaches, based on the liability for all non-entity sales going to the only country they had paid tax revenue to.
The EU was prepared to back Ireland in getting this money as it was a breach of their rules and would have led to difficulties for Apple trading in the EU.
Michael Noonan refused and challenged the decision.
So what happens now?
Well, Ireland are deemed to have been in breach of EU competition rules and are on the naughty step.
Ireland have done well in growing our economy but I believe have been let down badly by poor governance.
The 2015 26.3 per cent economic growth in a single year was in many ways a result of similar actions to that taken by the DUP.
They found a loophole or weakness in the system, felt they were on to a good thing but allowed it to go too far.
In the DUPs case, this had an expected cost of 400 million over 20 years.
So what is the cost implications for Ireland?
Well, the EU have already claimed there will be an increase on the circa 2.1 billion euros contribution Ireland was expected to pay in 2017, which will be based on last month’s EU Budget.
It had been expected to add an additional 443 million euros on to this amount.
Since Apple actually employ 6000 staff in Ireland, that comes to a tax contribution of 66,666 per person.
Nice, if it only existed anywhere but on paper.
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